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United States securities and exchange commission logo
December 23, 2020
Peng Ge
Chief Financial Officer
Fanhua Inc.
27/F, Pearl River Tower
No. 15 West Zhujiang Road
Guangzhou, Guangdong 510623
People's Republic of China
Re: Fanhua Inc.
Form 20-F for the
Fiscal Year Ended December 31, 2019
Filed April 29,
2020
File No. 001-33768
Dear Mr. Ge:
We have reviewed your November 25, 2020 response to our comment
letter 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 these comments within 10 business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response to these comments, we may have
additional
comments. Unless we note otherwise, our references to prior comments are
to comments in our
November 12, 2020 letter.
Form 20-F for the Fiscal Year Ended December 31, 2019
Note to the Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies
(r) Revenue Recognition
Insurance agency services revenue, page F-21
1. We acknowledge your
response to prior comment 1 and your October 30, 2020 response
to comment 2 from our
September 10, 2020 letter. Please address the following:
Provide us a more
complete explanation as to why the required post-sale services you
identify are
immaterial in the context of the contract. In your response tell us why the
following factors
are not indicative that these services are material in the context of
Peng Ge
FirstName
Fanhua Inc.LastNamePeng Ge
Comapany23,
December NameFanhua
2020 Inc.
December
Page 2 23, 2020 Page 2
FirstName LastName
the contract:
o Your obligation to provide these services for apparent
periods of up to the over
20 years renewal terms of the underlying insurance policies
appears to be a
significant commitment; and
o The fact that renewal commissions are deferred and paid when
the underlying
policies are renewed instead of at policy issuance appears
to indicate that your
insurance company customers expect the continued performance
of these post-
sale services;
Assuming that you can support that your post-sale services are
immaterial in the
context of the contract, tell us why you believe that the
required services being
completed after the performance of your single performance
obligation are
administrative in nature comparable to the set-up activities
identified in ASC 606-10-
25-17 when these activities appear to transfer a service to your
insurance company
customers that they would have to perform for their policyholders
had they not
contracted with you to perform them as an intermediary.
Assuming that you can support that your post-sale services are
immaterial in the
context of the contract and that these activities do indeed
transfer services to your
customers, as previously requested, please:
o Tell us the amount of costs to provide these services that
should have been
accrued under ASC 606-10-25-16A at:
January 1, 2018 adoption of ASC 606;
December 31, 2018;
December 31, 2019; and
now September 30, 2020; and
o Provide us your analysis under SAB 99 as to whether this
under accrual is
material.
2. We acknowledge your response to prior comment 2 and your October 30,
2020 response
to comment 3 from our September 10, 2020 letter. In order to help us
assess why your
variable consideration for trailing commissions estimated using the
expected value
method is fully constrained until the actual renewals occur, please
address the following
additional items:
Provide us additional insight into why the fact that renewals are
outside your control
and the broad range of possible outcomes fully limits your
ability to make estimates
of variable consideration given the law of large numbers and that
it seems that you
have significant policy activity. In your response, tell us the
significance of the
difference between renewal commissions, renewal compensation and
renewal
performance bonuses in making your estimate.
Help us understand how you apply the expected value method in
estimating renewal
rates and the amount of trailing commission variable
consideration to which you
expect to be entitled. In your response tell us how you group the
various insurance
products to make your estimate and explain how you assess each
product type for
each insurance company customer.
For each product grouping in the preceding bullet, tell us how
long you have been
Peng Ge
Fanhua Inc.
December 23, 2020
Page 3
collecting renewal information.
Tell us whether you currently collect renewal commissions for
policies issued prior to
2013 and from 2013 to 2016. If so, explain to us why you fully
constrain this estimate
given the amount of renewal history you have under these
policies.
Tell us why you apparently cannot make a reasonable estimate of
trailing
commissions variable consideration at least in the near term
when, for example, you
disclosed in your second quarter of 2020 earnings call a 92%
30-month persistency
ratio and that the 25-month renewal rate exceeded 87%.
For each of the product groupings identified in the fourth
preceding bullet, tell us the
amount of trailing commission variable consideration expected
under your
application of the expected value method for the next succeeding
year as of January
1, 2018 (adoption of ASC 606), December 31, 2018 and December 31,
2019 and the
amount of actual renewal commissions received in that succeeding
year. For example
and for clarification purposes, tell us the amount of renewal
commissions you
expected to receive under the expected value method for 2018 in
your January 1,
2018 assessment as well as the amount of actual renewal premiums
received in 2018.
You may contact Mark Brunhofer at (202) 551-3638 or Sharon Blume at (202)
551-
3474 with any questions.
FirstName LastNamePeng Ge Sincerely,
Comapany NameFanhua Inc.
Division of
Corporation Finance
December 23, 2020 Page 3 Office of
Finance
FirstName LastName