Health Startup Waterdrop Submits Prospectus to SEC

Chinese online medical insurance startup Waterdrop Inc. on April 17 formally submitted a prospectus to the United States Securities and Exchange Commission (SEC), in preparation for an initial public offering (IPO) at the New York Stock Exchange under the label of “WDH”.

The firm’s underwriters include Goldman Sachs, Morgan Stanley, Bank of America Merrill Lynch, as well as Chinese investors such as Agricultural Bank of China, China Merchants Securities, China International Trust and Investment Corporation and other domestic securities companies.

According to iResearch, Waterdrop Inc., founded in April 2016, is the largest independent third-party insurance platform in China, measured by total allocation of first year premiums for life insurance and health insurance in 2020. Through medical crowdfunding, mutual aid platforms and the insurance market, Waterdrop Inc. has established a huge social security and support network to provide insurance and medical services for Chinese consumers.

Public information shows that ahead of the IPO, Waterdrop Inc. has completed five rounds of financing, gathering a total amount of about 3.2 billion yuan ($490 million). The latest round D financing, led by Swiss Re Group and Tencent, brought in more than $230 million for the firm in August 2020.

According to the prospectus, the company’s annual revenue expanded from 238 million yuan ($36 million) in 2018 to 1.511 billion yuan ($231 million) in 2019 before reaching 3.028 billion yuan ($464 million) in 2020, demonstrating a significant growth trend. As the main source of income, the firm’s insurance commission in 2020 was 2.695 billion yuan ($413 million), accounting for 89.1% of the total revenue.

The first year premium in 2020 exceed 14.4 billion yuan ($2.21 billion). As of December 31 of last year, Waterdrop’s total insurance users reached about 79.4 million, and the number of paid insurance policies was 30.7 million.

Waterdrop Inc. previously operated Waterdrop Insurance, Waterdrop Financing and Waterdrop Mutual Aid as its three core business lines. Waterdrop Mutual Aid, which was closed on March 31, provided a platform for its participants to help each other and reduce the burden of medical expenses of more than 100 critical diseases.

Using Waterdrop Financing, which was launched in July 2016, patients or their relatives and friends can release fund-raising links to their social networks to ask for help. By December 31, 2020, more than 340 million people have donated more than 37 billion yuan ($5.67 billion) to more than 1.7 million patients through the financing platform. Due to the absence of a service charge for patients, Waterdrop Financing does not receive any revenue.

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Waterdrop Insurance has cooperated with 62 insurance companies such as Taiping Life, Zhong’an Insurance and Hongkang Life to provide 200 kinds of insurance products online, most of which are jointly customized.
Taiping Life’s commission in 2020 accounted for 24.9% of Waterdrop’s total revenue, while Hongkang Life accounted for 11.1%.

In terms of equity distribution, before the IPO, Shen Peng, founder and CEO of Waterdrop Inc., Yang Guang, general manager of Waterdrop Insurance, and Hu Yao, general manager of Waterdrop Financing held 26.4% of the shares. In addition, Tencent, Boyu Capital, Gaorong Capital and Swiss Re Group held 22.1%, 11.9%, 6.5% and 5.7% of total shares respectively.

Waterdrop Inc. can look ahead to a promising future. According to the report of iResearch, in 2019, China’s total expenditure in medical services reached 7 trillion yuan ($1.07 trillion), of which 4.7 trillion yuan ($719 billion) does not fall within the reimbursement range of social medical insurance, commercial insurance or other supplementary medical insurances. As a trustworthy brand in China, Waterdrop Inc. currently occupies a highly favorable position in the market.