Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)

Operating and Financial Review and Prospects

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties about our business and operations. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those we describe under "Item 3. Key Information-D. Risk Factors" and elsewhere in this annual report.

Key Factors Affecting Our Results of Operations

We benefit from the rapid development of healthcare and insurance industries, in particular health and life insurance industry, in China. Meanwhile, we operate in a highly regulated industry in China, and the regulatory regime continues to evolve. Regulatory changes may affect our growth potential as well as the competitive landscape of the market.

While our business is influenced by general factors affecting our industry, our results of operations are more directly affected by company-specific factors, including the following major ones:

Expansion and retention of consumer base

Brokerage income earned from insurance carriers through our insurance marketplace is the main source of our revenue, which is significantly affected by the number of insurance consumers on the Waterdrop Insurance Marketplace and Shenlanbao Insurance Marketplace.

Our insurance consumers come from third-party traffic channels, traffic directed from our medical crowdfunding operation, and private domain contacts. In 2024, we moderately increased our investment in third-party traffic channels. In order to enhance overall user retention, we launched "Three Good Service" Initiative program to improve user satisfaction.

As of December 31, 2023 and 2024, the cumulative number of paying insurance consumers was approximately 32.3 million and 33.6 million, respectively.

First year premium per consumer

We believe that consumers choose our platform and repeat their purchases on our platform mainly because of the abundant product offerings, the convenience of online platform and the professional service of our team. As of December 31, 2024, we cumulatively offered 1,967 insurance products on Waterdrop Insurance Marketplace, as compared with 1,357 as of December 31, 2023.

In China, consumer awareness of health protection and insurance products remains significantly lower than in developed countries, leading many users on our platform to initially purchase short-term products. As we serve a growing number of consumers, we gain valuable insights that allow us to work with insurers to co-create more appealing products. We are at the forefront of developing innovative solutions tailored for specific users, including those with pre-existing medical conditions who may struggle to qualify for traditional health insurance. As a result of increasing product and user diversity, the FYP per policy for short-term health insurance products rose from RMB572 in 2023 to RMB759 in 2024.

Since introducing long-term health and life insurance products at the end of 2018, we have actively worked to raise consumer awareness and demonstrate the value of these products through our platform and service. The acquisition of Shenlanbao in 2023 further enhanced our service capabilities. Long-term health and life insurance products accounted for 31.3% and 30.4% of the FYP generated through our platforms in 2023 and 2024, respectively. The FYP per policy for long-term health and life insurance products increased from RMB7,180 in 2023 to RMB7,969 in 2024.

Overall, the FYP per policy rose from RMB803 in 2023 to RMB1,047 in 2024. In addition to this growth, the number of policies per consumer remained stable at 1.6 in 2023 and 1.5 in 2024. Consequently, the FYP per consumer increased from RMB1,324 in 2023 to RMB1,594 in 2024.

Cooperation with insurance carriers

We cooperate with insurance carriers to offer their standard insurance products or to design and develop tailor-made insurance products, and our relationship with insurance carriers is crucial to our success. As of December 31, 2024, we had established business cooperation with 102 insurance carriers. Our large consumer base and strong business development capabilities allow us to negotiate favorable terms in our business cooperation with insurance carriers. We need to keep the growth of our business, brand influence, value-added technology service capabilities and risk management capabilities so as to strengthen and deepen the cooperation with our existing insurance carriers.

Operating efficiency and leverage

We have incurred significant costs and expenses in building our platform, growing our consumer base and developing capabilities in data analysis and technology. Our business model is highly scalable and our platform is built to support our continued growth.

We have always been mindful of the balance between business growth and costs and expenses. We have been endeavoring to improve selling and marketing efficiency. For example, we carefully select third-party user traffic channels, and further optimize and diversify our user acquisition channels. We have also been endeavoring to optimize our marketing strategies by adjusting our selling and marketing expenses and allocation of marketing resources. For instance, we moderately increased our investment in third-party traffic channels to promote certain new products in 2024.

Furthermore, we have invested in technology to accumulate and process multi-dimensional consumer data and transaction data, and have conducted in-depth analysis to improve our user acquisition and conversion, product design and risk management capabilities, which in tuimproves our overall operational margin. We have promoted technology advances in certain sales and customer service processes that effectively reduced costs, namely our own CRM system and AI applications.

Key Components of Results of Operations

Operating revenue, net

We generate net operating revenue primarily from (i) providing insurance brokerage services to insurance carriers, (ii) providing technical services to insurance carriers and other insurance brokerage or agency companies through our platforms, (iii) crowdfunding service fees from operating Waterdrop Medical Crowdfunding, and (iv) digital clinical trial solution income, mainly deriving from matching qualified and suitable patients for enrollment in clinical trials for biopharmaceutical companies and leading biotechnology companies. Starting from the second quarter of 2023, our chief operating decision makers have been managing the business, assessing the performance and allocating resources under the new operating segment structure. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate and their management and reporting structure. We currently organize and report our business in the following segments: (i) insurance, which mainly includes Waterdrop Insurance Marketplace, Shenlanbao Insurance Marketplace and technical support service; (ii) crowdfunding, which mainly includes Waterdrop Medical Crowdfunding, and (iii) others, which do not individually or in the aggregate meet the quantitative and qualitative thresholds to be individually reportable and are aggregated. As a result, we have updated our segments reporting information to reflect the new operating and reporting structure. Comparative figures were retrospectively adjusted to conform to this presentation. The following table sets forth the breakdown of our operating revenue, in amounts and as percentages of operating revenue by segment for the years presented:

Note:

Insurance. We derive insurance income primarily from commission fees generated from distributing insurance products underwritten by insurance carriers through our Waterdrop Insurance Marketplace and Shenlanbao Insurance Marketplace, and the technical support service we provide. On one hand, the commission fees we are entitled to receive are based on a percentage of the premiums our insurance consumers pay insurance carriers. Commission fee rates generally depend on the type of insurance products and the particular insurance carriers. Commission fees for each insurance policy, taking into account the estimated premium retention rate data, are recognized as our revenue upon policy effective dates. We believe FYP is a strong indicator of brokerage income because it better demonstrates the brokerage income we may generate for an insurance policy. For certain long-term insurance policies sold, we are also entitled to a performance bonus from insurance companies if the retention rate for a certain period exceeds a predetermined percentage, or if its FYP exceeds a predetermined amount. We may also be asked to refund some commission to insurance companies if the retention rate for a certain period falls below a predetermined percentage. The bonus or the refund is contingent on the occurrence (or non-occurrence) of a future event. In addition, in terms of the technical support service, we primarily provide technical services to certain insurance brokerage or agency companies through our CRM system. We also provide marketing services to certain companies on our various website channels and apps. In addition, we provide risk management services to certain insurance companies.

Crowdfunding. Crowdfunding services primarily consist of providing technical and internet support, managing and reviewing the crowdfunding campaigns, and facilitating the collection and transfer of funds to the patients. The platform service fee is charged at a certain percentage of the withdrawal amount for a single crowdfunding campaign, subject to a capped maximum amount for a single crowdfunding campaign. The service fee is payable to us only upon the successful withdrawal of the funds by the patient.

Others. Other revenues mainly include income generated from digital clinical trial solution and other new initiatives. We derive digital clinical trial solution income primarily from matching qualified and suitable patients for enrollment in clinical trials for our customers that mainly include biopharmaceutical companies and leading biotechnology companies. We enter into patient recruitment contracts with these customers to match qualified patients with optimal suitability for enrollment in clinical trials. We typically charge a fixed unit price per successful match. Other new initiatives are those early-stage businesses. Revenues generated from the other new initiatives are not material, either individually or in aggregate.

For details of the segment information, see Note 12 "Segment Information" to our audited consolidated financial statements included elsewhere in this annual report.

Operating costs and expenses

Our operating costs and expenses consist of operating costs, sales and marketing expenses, general and administrative expenses, research and development expenses. The following table sets forth the breakdown of our total operating costs and expenses, in amounts and as percentages of net operating revenue for each of the years presented:

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Operating costs. Operating costs primarily consists of (i) payroll and related expenses for insurance agents and customer service personnel, (ii) transaction fees charged by third-party payment platforms relating to insurance brokerage services, (iii) costs of referral and service fees, (iv) charges for the usage of the server and cloud service incurred for operational support of the platforms, and the expenses of facilities and equipment, such as depreciation expenses, rental and others, attributed to our principal operations, (v) costs for digital clinical trial solution consultants team, and (vi) costs for the crowdfunding consultants team and cost related to the information review and investigation of medical crowdfunding campaigns. We expect our operating costs to increase in absolute terms as our scale of business grows. However, as we improve the operating efficiency of our platform and achieve more economies of scale, we expect our operating costs as a percentage of our net operating revenue will decrease in the foreseeable future.

Sales and marketing expenses. Our sales and marketing expenses primarily consist of (i) marketing expenses for user acquisition and brand building, (ii) payroll and related expenses for employees involved in sales and marketing functions, (iii) outsourced sales and marketing service fees to third parties, and (iv) the associated expenses of facilities and equipment, such as depreciation expenses, rental and others.

General and administrative expenses. Our general and administrative expenses mainly consist of (i) payroll and related expenses for employees engaging in general corporate functions, including the share-based compensation expenses, (ii) professional service fees and other general corporate expenses, (iii) impairment loss of intangible assets and allowance for credit losses, and (iv) expenses associated with the use by these functions of facilities and equipment, such as rental and depreciation expenses.

Research and development expenses. Our research and development expenses mainly consist of (i) payroll and related expenses for employees involved in platform and new function development and significant improvement, and (ii) charges for the usage of the server and cloud service incurred to support research, design, and development activities by research and development personnel, as well as (iii) expenses of facilities and equipment, such as depreciation expenses, rental and others.

Taxation

Cayman Islands

The Cayman Islands currently levies no taxes on corporations based upon profits, income, gains or appreciations. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands.

Hong Kong

According to the Hong Kong regulations, Hong Kong entities are subject to a two-tiered income tax rate for taxable income earned in Hong Kong with effect from April 1, 2018. The first HK$2 million of profits earned by HK entity is be taxed at 8.25%, while the remaining profits continue to be subject to the existing 16.5% tax rate. In addition, to avoid abuse of the two-tiered tax regime, each group of connected entities can nominate only one entity to benefit from the two-tiered tax rate. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income.

Mainland China

Our subsidiaries, the consolidated VIEs and subsidiaries of the VIEs established in mainland China are mainly subject to statutory income tax at a rate of 25%. Certain enterprises benefit from a preferential tax rate of 15% under the PRC Enterprise Income Tax Law if they qualify as high and new technology enterprises, or engaged in encouraged industries and located in specific tax-advantaged areas. Besides, from January 1, 2023 to December 31, 2027, subject to certain criteria, the portion of annual taxable income amount of a small profit enterprise shall be computed at a reduced rate of 25% as taxable income amount, and be subject to enterprise income tax at 20% tax rate.

The PRC Enterprise Income Tax Law includes a provision specifying that legal entities organized outside of mainland China will be considered resident enterprises for the mainland China income tax purposes if the place of effective management or control is within mainland China. The implementation rules to the PRC Enterprise Income Tax Law provide that non-resident legal entities will be considered as mainland China resident enterprises if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc., occurs within mainland China. Despite the present uncertainties resulting from the limited tax guidance on the issue in mainland China, we do not believe that our entities organized outside of the mainland China should be treated as resident enterprises for the mainland China income tax purposes. If the tax authorities in mainland China subsequently determine that our company and our subsidiaries registered outside mainland China should be deemed resident enterprises, our company and our subsidiaries registered outside mainland China will be subject to the mainland China income tax, at a rate of 25%. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-If we are classified as a mainland China resident enterprise for mainland China income tax purposes, such classification could result in unfavorable tax consequences to us and our non-mainland China shareholders and ADS holders."

The PRC Enterprise Income Tax Law also imposes a withholding income tax of 10% on dividends distributed by a foreign-invested enterprise to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company incorporated, does not have such tax treaty with China. According to the arrangement between the mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by a foreign-invested enterprise in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the foreign-invested enterprise). In accordance with accounting guidance, all undistributed earnings are presumed to be transferred to the parent company thereby resulting in deferred tax liabilities to account for future withholding taxes. All foreign-invested enterprises are subject to the withholding tax from January 1, 2008. The presumption may be overcome if we have sufficient evidence to demonstrate that the undistributed dividends will be re-invested and the remittance of the dividends will be postponed indefinitely. We did not record any deferred tax liabilities for dividend withholding tax, as we have no retained earnings for the years ended December 31, 2022, 2023 and 2024. See "Item 3. Key Information-D. Risk Factors-Risks Related to Our Corporate Structure-Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or the VIEs owe additional taxes, which could negatively affect our financial condition and the value of your investment."

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our net operating revenue for the periods presented.

Note:

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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Operating revenue, net

Our net operating revenue increased by 5.4% from RMB2,630.7 million in 2023 to RMB2,771.8 million (US$379.7 million) in 2024. The increase was primarily due to the increase of crowdfunding service fees and insurance related income.

The net operating revenue from insurance-related businesses increased by 1.0% year-over-year, from RMB2,340.9 million in 2023 to RMB2,363.8 million (US$323.8 million) in 2024. This growth was primarily driven by higher insurance brokerage income, which stemmed from an increase in FYP generated through our platform. The FYP rose from RMB7,109 million in 2023 to RMB7,473 million in 2024, attributable to both the optimization and expansion of long-term insurance product offerings and the acquisition of Shenlanbao in July 2023. Notably, the FYP per policy for long-term insurance products increased from RMB7,180 in 2023 to RMB7,969 in 2024.

The net operating revenue from crowdfunding business increased by 64.5% from RMB162.7 million in 2023 to RMB267.7 million (US$36.7 million) in 2024, which was mainly due to an increase in service fee rate.

The net operating revenue from other business increased by 10.5% from RMB127.1 million in 2023 to RMB140.4 million (US$19.2 million) in 2024, which was mainly due to business expansion.

Operating costs and expenses

Our total operating costs and expenses decreased by RMB43.8 million, or 1.7%, from RMB2,637.5 million in 2023 to RMB2,593.7 million (US$355.3 million) in 2024, which was mainly due to the effective cost control measures.

Operating costs

Our operating costs increased by 10.0% from RMB1,195.5 million in 2023 to RMB1,314.7 million (US$180.1 million) in 2024, which was primarily driven by (i) an increase of RMB138.8 million in costs of referral and service fees driven by the expansion of business, partially offset by (ii) a decrease of RMB12.3 million in the costs for crowdfunding consultants team, and (iii) a decrease of RMB10.3 million in the costs for digital clinical trial solution consultants team.

Sales and marketing expenses

Our sales and marketing expenses decreased by 6.2% from RMB740.5 million in 2023 to RMB694.8 million (US$95.2 million) in 2024, which was primarily due to (i) a decrease of RMB93.1 million in personnel costs and share based compensation costs, partially offset by (ii) an increase of RMB40.6 million in marketing expenses to third-party traffic channel, and (iii) an increase of RMB12.5 million in outsourced sales and marketing service fees to third parties.

General and administrative expenses

Our general and administrative expenses decreased by 8.6% from RMB402.4 million in 2023 to RMB367.7 million (US$50.4 million) in 2024, which was mainly due to (i) a decrease of RMB32.5 million in the professional service fee, (ii) a decrease of RMB18.3 million in general and administrative personnel costs and share-based compensation expenses, (iii) a decrease of RMB5.9 million in office rental and office administrative expenses, partially offset by (iv) a non-cash impairment of intangible assets related to Shenlanbao of RMB20.6 million recorded in 2024, and (v) an increase of RMB9.6 million in allowance for credit losses.

Research and development expenses

Our research and development expenses decreased by 27.6% from RMB299.1 million in 2023 to RMB216.5 million (US$29.7 million) in 2024. The decrease was primarily due to a decrease of RMB79.9 million in research and development personnel costs and share-based compensation expenses.

Operating profit/(loss)

Our operating profit/(loss) increased from operating loss of RMB6.7 million in 2023 to operating profit of RMB178.2 million in 2024, which was mainly due to the net impact of: (i) Insurance: operating profit fell from RMB528.1 million in 2023 to RMB477.2 million in 2024, primarily driven by the increase in user acquisition and brand building expenditures; (ii) Crowdfunding: operating loss decreased significantly from RMB245.8 million in 2023 to RMB95.1 million in 2024 largely due to the revenue growth; (iii) Others: operating loss decreased from RMB155.2 million in 2023 to RMB96.5 million in 2024, primarily because of effective implementation of company-wide cost optimization measures.

Interest income

Our interest income increased by 9.6% from RMB136.0 million in 2023 to RMB149.1 million (US$20.4 million) in 2024 due to the increased proportion of long-term debt investments.

Net profit

As a result of the foregoing, our net profit for the year of 2024 was RMB350.9 million (US$48.1 million), compared to RMB163.7 million for the year of 2023.

Income tax expense

Income tax expense in 2024 was RMB9.7 million (US$1.3 million), compared with RMB0.6 million in 2023. The increase was primarily due to the increase of profit before tax.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Operating revenue, net

Our net operating revenue decreased by 6.1% from RMB2,801.8 million in 2022 to RMB2,630.7 million in 2023, including the revenue generated by Shenlanbao of RMB92.9 million after consolidation. The decrease was primarily due to the decrease in net operating revenue from insurance related income, partially offset by the increase in net operating revenue from crowdfunding service fees and other income.

The net operating revenue from insurance related business decreased by 8.5% from RMB2,559.2 million in 2022 to RMB2,340.9 million in 2023, which was mainly due to the net impact of the decrease of the short-term insurance brokerage income by 15.2% from RMB1,628.9 million in 2022 to RMB1,381.9 million in 2023, partially offset by the increase of the long-term insurance brokerage income by 15.2% from RMB714.4 million in 2022 to RMB823.3 million in 2023. The FYP from short-term insurance products decreased from RMB4,907 million in 2022 to RMB4,887 million in 2023, while the FYP from long-term insurance products increased from RMB1,983 million in 2022 to RMB2,223 million in 2023, primarily due to the acquisition of Shenlanbao which expanded our long-term insurance product offerings. The FYP from long-term insurance products accounted for approximately 28.8% and 31.3% of the total FYP generated through us in 2022 and 2023, respectively. The FYP per policy of long-term insurance products increased from RMB5,004 in 2022 to RMB7,180 in 2023.

The net operating revenue from crowdfunding business increased by 4.4% from RMB155.8 million in 2022 to RMB162.7 million in 2023, which was mainly because we started to charge crowdfunding service fees in April 2022 and have generated revenue from crowdfunding service fees since then.

The net operating revenue from other business increased by 46.4% from RMB86.8 million in 2022 to RMB127.1 million in 2023, which was mainly due to the 69.0% increase of digital clinical trial solution income as a result of the increase in the number of patients successfully enrolled from 2,846 in 2022 to more than 3,300 patients in 2023.

Operating costs and expenses

Our total operating costs and expenses increased by RMB313.7 million, or 13.5%, from RMB2,323.8 million in 2022 to RMB2,637.5 million in 2023, which was mainly due to the consolidation of the financial results of Shenlanbao which generated operating costs and expenses of RMB130.7 million.

Operating costs

Our operating costs increased by 17.3% from RMB1,019.4 million in 2022 to RMB1,195.5 million in 2023, which was mainly due to (i) an increase of RMB109.3 million in costs of referral and service fees, (ii) an increase of RMB62.0 million in the crowdfunding consultants team costs as we commenced generating crowdfunding service fees since April 2022, and (iii) the consolidation of the financial results of Shenlanbao, which incurred operating costs of RMB38.7 million, partially offset by (i) a decrease of RMB19.5 million in the cost of one-year health insurance coverage related to the termination of mutual aid plan based on the final settlement information, which occurred in the third quarter of 2022, and (iii) a decrease of RMB15.1 million in personnel costs.

Sales and marketing expenses

Our sales and marketing expenses increased by 18.6% from RMB624.5 million in 2022 to RMB740.5 million in 2023, which was mainly due to (i) the consolidation of the financial results of Shenlanbao, which incurred sales and marketing expenses of RMB67.1 million, (ii) an increase of RMB100.8 million in marketing expenses to third-party traffic channels, (iii) an increase of RMB29.8 million in personnel costs and share-based compensation costs, partially offset by a decrease of RMB86.3 million in outsourced sales and marketing service fees to third parties.

General and administrative expenses

Our general and administrative expenses increased by 3.5% from RMB388.7 million in 2022 to RMB402.4 million in 2023, which was mainly due to the consolidation of the financial results of Shenlanbao, which incurred general and administrative expenses of RMB12.9 million.

Research and development expenses

Our research and development expenses increased by 2.7% from RMB291.3 million in 2022 to RMB299.1 million in 2023. The increase was primarily due to the consolidation of the financial results of Shenlanbao, which incurred research and development expenses of RMB12.0 million, partially offset by a decrease of RMB3.4 million in research and development personnel costs and share-based compensation expenses.

Operating profit/(loss)

Our operating profit/(loss) decreased by 101.4% from operating profit of RMB478.0 million in 2022 to operating loss of RMB6.7 million in 2023, which was mainly due to the net impact of: (i) Insurance: operating profit fell from RMB1,035.1 million in 2022 to RMB528.1 million in 2023, primarily driven by the decrease of short-term brokerage income and increase of costs of referral and service fees and marketing expenses; (ii) Crowdfunding: operating loss decreased slightly from RMB254.2 million in 2022 to RMB245.8 million in 2023, which was nearly stable; (iii) Others: operating loss decreased from RMB190.9 million in 2022 to RMB155.2 million, primarily because of effective implementation of company-wide cost optimization measures.

Interest income

Our interest income increased by 66.5% from RMB81.7 million in 2022 to RMB136.0 million in 2023. The increase was mainly due to the increase in interest rate.

Net profit

As a result of the foregoing, our net profit for the year of 2023 was RMB163.7 million, compared to RMB607.7 million for the year of 2022.

Income tax expense

Income tax expense in 2023 was RMB0.6 million, compared with RMB23.0 million in 2022. The decrease was primarily due to the decrease of profit before tax.

Critical Accounting Estimates

We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make judgments, estimates and assumptions. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and various assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. 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.

The selection of critical accounting policies, the judgments and other uncertainties affecting 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. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the following description of critical accounting estimates in conjunction with our consolidated financial statements and other disclosures included in this annual report.

Revenue Recognition

For insurance brokerage service, our performance obligation to the insurance carrier is satisfied and commission revenue is recognized at the point in time when an insurance policy becomes effective. We determine the transaction price of our contracts by estimating commissions that we expect to be entitled to over the premium collection term of the policy based on historical experience regarding premium retention and assumptions about future policyholder behavior and market conditions. Such estimates are 'constrained' in accordance with ASC 606. That is, we use the expected value method and only include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transactions will not occur.

For certain long-term insurance products sold, we are also entitled to a performance bonus from insurance carriers if the retention rate for certain periods exceeds a predetermined percentage, or if its FYP exceeds a predetermined amount. We may also be asked to refund some commission to insurance companies if the retention rate for a certain period falls below a predetermined percentage. As the consideration for the bonus or the refund is contingent on the occurrence (or nonoccurrence) of a future event, the bonus or the refund represents variable consideration. Consistent with the policy described above, we use the expected value method to estimate the variable consideration and may constrain the estimate to the extent that it is probable that a significant reversal of revenue in the future will not occur.

Our significant estimates include estimating commissions to which we are entitled over the premium collection term, policyholder behavior and market conditions. They require subjective management judgment and any changes in those estimates may cause us to realize different amounts of revenues in the future periods.

Income Taxes

Current income taxes are provided for in accordance with the laws of the tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized, which can require the use of accounting estimation and the exercise of judgement. The impact of an uncertain income tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.

Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies. If it is determined that we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding decrease to earnings.

Recent Accounting Pronouncements

A list of recently issued accounting pronouncements that are relevant to us is included in Note 2 "Recent accounting pronouncements" to our audited consolidated financial statements included elsewhere in this annual report.

We had net cash provided by operating activities of RMB765.7 million in 2022, RMB406.5 million in 2023 and RMB437.3 million (US$59.9 million) in 2024. Our primary sources of liquidity have been proceeds from operating activities and equity and debt financing. As of December 31, 2024, we had an aggregate of RMB4.2 billion (US$574.2 million) in cash and cash equivalents, restricted cash, short-term investments and long-term debt investments included in long-term investments, of which approximately 45.9% were held in Renminbi and the remainder was mainly held in U.S. dollars.

In March 2024, our board of directors approved a special cash dividend of US$0.04 per ADS or US$0.004 per ordinary share to shareholders of record as of the close of business on April 19, 2024. The aggregate payment amounted to approximately US$14.8 million. In September 2024, our board of directors approved another special cash dividend of US$0.02 per ADS or US$0.002 per ordinary share to shareholders of record as of the close of business on November 5, 2024. The aggregate payment amounted to approximately US$7.3 million. In March 2025, our board of directors approved another cash dividend of US$0.02 per ADS or US$0.002 per ordinary share, for a total amount of approximately US$7.3 million, to shareholders of record as of the close of business on April 11, 2025. The payment date is expected to be on or around April 30, 2025 for holders of ordinary shares and on or around May 2, 2025 for holders of ADSs.

We believe our cash on hand will be sufficient to meet our current and anticipated needs for working capital and capital expenditure requirement for at least the next 12 months.

Our restricted cash was RMB517.4 million, RMB577.1 million and RMB520.6 million (US$71.3 million) as of December 31, 2022, 2023 and 2024, respectively. Our restricted cash primarily consists of premiums collected by us from the insurance consumers in a fiduciary capacity until disbursed to the insurance carriers. Restricted cash also includes guarantee deposits. We pay guarantee deposits required by National Financial Regulatory Administration in order to protect insurance premium appropriation by insurance broker and agency.

Our accounts receivable represents primarily brokerage commission fee receivable from insurance carriers and technical service fees receivable from insurance carriers. As of December 31, 2022, 2023 and 2024, our accounts receivable was RMB675.8 million, RMB693.1 million and RMB716.2 million (US$98.1 million), respectively.

Our contract assets are recorded for arrangements when we have provided the insurance brokerage services but for which the related commission payments are not yet due. Contract assets represent primarily the brokerage commission fee that is contingent upon the future premium payment of the insurance policy holders and retention-based bonus. As of December 31, 2022, 2023 and 2024, our contract assets were RMB553.7 million, RMB707.3 million and RMB773.2 million (US$105.9 million), respectively.

Our prepaid expense and other assets represent primarily (i) prepayments and deposits, (ii) the fund receivable from external payment service providers through which we collect and transfer insurance premiums to insurance carriers, and donors' donation received by our external payment service provider prior to those being transferred to custodian bank, and (iii) the advances to suppliers, such as the prepayments to third-party traffic channels. As of December 31, 2022, 2023 and 2024, our prepaid expense and other assets were RMB342.5 million, RMB189.8 million and RMB182.6 million (US$25.0 million), respectively.

Insurance premium payables represent insurance premiums we collected on behalf of insurance carriers from the insurance consumers but have not yet been remitted to insurance carriers as of the balance sheet dates. As of December 31, 2022, 2023 and 2024, our insurance premium payables were RMB516.7 million, RMB592.0 million and RMB537.3 million (US$73.6 million), respectively.

Our accrued expenses and other current liabilities represent primarily (i) accrued marketing and customer service expenses, (ii) payroll and welfare payable, and (iii) payable related to medical crowdfunding business, which mainly represents the funds we collected through the third-party payment platforms that has not been transferred to custodian bank. Our accrued expenses and other current liabilities were RMB584.1 million, RMB597.7 million and RMB704.0 million (US$96.5 million) as of December 31, 2022, 2023 and 2024, respectively.

Although we consolidate the results of the VIEs, we only have access to the assets or earnings of the VIEs through our contractual arrangements with the VIEs and their shareholders. See "Item 4. Information on the Company-C. Organizational Structure." For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see "-Holding Company Structure."

The majority of our operating revenue has been, and we expect that it is likely to continue to be, in the form of Renminbi. Under existing foreign exchange regulations in mainland China, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our subsidiaries mainland China are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current regulations permit in mainland China our subsidiaries in mainland China to pay dividends to us only out of its accumulated profits, if any, determined in accordance with accounting standards and regulations in mainland China. Our subsidiaries in mainland China are required to set aside at least 10% of its after-tax profits after making up previous years' accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Historically, our subsidiaries in mainland China have not paid dividends to us, and they will not be able to pay dividends until they generate accumulated profits. Furthermore, capital account transactions, which include foreign direct investment and loans, must be approved by and/or registered with SAFE, its local branches and certain local banks.

As a Cayman Islands exempted company and offshore holding company, we are permitted under laws and regulations in mainland China to provide funding to our subsidiaries in mainland China only through loans or capital contributions, subject to the approval of governmental authorities and limits on the amount of capital contributions and loans. This may delay us from using the proceeds from financing activities to make loans or capital contributions to our subsidiaries in mainland China. We expect to invest substantially all of the proceeds from financing activities into our operations in China for general corporate purposes within the business scopes of our subsidiaries in mainland China and the VIEs. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-Regulation in mainland China of loans to and direct investment in the entities in mainland China by offshore holding companies may delay us from using the proceeds of financing activities to make loans or additional capital contributions to our subsidiaries in mainland China and to make loans to the VIEs, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

The following table sets forth the movements of our cash flows for the periods presented:

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Operating activities

Net cash provided by operating activities in 2024 was RMB437.3 million (US$59.9 million). The difference between the net profit of RMB350.9 million (US$48.1 million) and positive operating cash flow of RMB437.3 million was non-cash expenses items such as share-based compensation expense of RMB86.9 million, and depreciation of property, equipment and software of RMB11.4 million, and changes in working capital accounts, which mainly include (i) RMB66.2 million increase in contract assets, (ii) RMB54.6 million decrease in insurance premium payables, and (iii) RMB35.1 million increase in accounts receivable, partially offset by RMB107.9 million increase in accrued expenses and other current liabilities.

Specifically, the decrease in insurance premium payables was primarily due to the decrease of turnover days. The increase in contract assets and the increase in accounts receivable were primarily due to the increase in the FYP generated through our platform. The increase in accrued expenses and other current liabilities was primarily due to (i) the increase in accrued marketing and customer service expenses, and (ii) the increase in payroll and welfare payable.

Net cash provided by operating activities in 2023 was RMB406.5 million. The difference between the net profit of RMB163.7 million and positive operating cash flow of RMB406.5 million was certain adjustment of non-cash expenses items, such as share-based compensation expense of RMB133.9 million and depreciation of property, equipment and software of RMB13.4 million, and changes in working capital accounts, which mainly include (i) RMB149.9 million decrease in prepaid expense and other assets, and (ii) RMB75.3 million increase in insurance premium payables, partially offset by (i) RMB43.5 million decrease in accrued expenses and other current liabilities, and (ii) RMB99.9 million increase in contract assets, and (iii) RMB36.7 million increase in right of use assets, net.

Specifically, the decrease in prepaid expense and other assets was primarily due to the decrease in the advances to suppliers as a result of decrease in the prepayments to third-party traffic channels. The increase in insurance premium payables was primarily due to the increase in the FYP generated through our platform from RMB6,890 million in 2022 to RMB7,109 million in 2023. The increase in contract assets was primarily due to the increase in the FYP generated through our platform in 2023. The decrease in accrued expenses and other current liabilities was primarily due to (i) the decrease in payable related to mutual aid plans and medical crowdfunding, and (ii) the decrease in accrued marketing and customer service expenses. The increase of right of use assets, net was primarily due to the renewal of certain leases.

Net cash provided by operating activities in 2022 was RMB765.7 million. The difference between the net profit of RMB607.7 million and positive operating cash flow of RMB765.7 million was non-cash expenses items such as share-based compensation expenses of RMB112.0 million, and depreciation of property, equipment and software of RMB22.8 million, and changes in working capital accounts, which mainly include (i) RMB168.4 million decrease in insurance premium payables, (ii) RMB42.8 million increase in accounts receivable, partially offset by (i) RMB85.1 million decrease in prepaid expense and other assets, (ii) RMB85.0 million increase in accrued expenses and other current liabilities, and (iii) RMB39.8 million decrease in contract assets.

Specifically, the decreases in insurance premium payables and contract assets were primarily due to the downsize in the FYP generated through our platform in 2022, which was due to the decrease in the number of new consumers resulting from our reduced reliance on third-party user acquisition channels in 2022. The increase in accounts receivable was primarily due to the increase of turnover days. The decrease in prepaid expense and other assets was primarily due to the decrease in fund receivable from external payment service providers through which we collect various fund in our operation. The increase in accrued expenses and other current liabilities was primarily due to the increase in the accrued customer service expense payable to third-party companies.

Investing activities

Net cash provided by investing activities in 2024 was RMB291.6 million (US$40.0 million), consisting primarily of net cash provided by redemption of short-term and long-term investment products, partially offset by net cash used in purchase of property, equipment and software.

Net cash used in investing activities in 2023 was RMB1,173.0 million, consisting primarily of net cash paid for acquisitions of subsidiaries, and net cash used in purchase of short-term and long-term investment products.

Net cash used in investing activities in 2022 was RMB139.8 million, consisting primarily of net cash prepaid for investments, and net cash used in purchase of short-term investment products.

Financing activities

Net cash used in financing activities in 2024 was RMB198.6 million (US$27.2 million), consisting primarily of payment in connection with the share repurchase program, and payment of dividend to shareholders, partially offset by the net proceeds from short-term loans.

Net cash used in financing activities in 2023 was RMB377.2 million, consisting primarily of payment in connection with the share repurchase program, partially offset by the proceeds from short-term loans.

Net cash used in financing activities in 2022 was RMB57.5 million, consisting primarily of the payment in connection with the share repurchase program.

Material cash requirements

Our material cash requirements as of December 31, 2024 and any subsequent interim period primarily include our capital expenditures and operating lease commitments.

Our capital expenditures primarily represent cash paid for purchase of property, equipment and software. We made capital expenditures of RMB11.9 million, RMB13.5 million and RMB218.4 million (US$29.9 million) in 2022, 2023 and 2024, respectively. The increased expenditures in 2024 were mainly due to the purchase of a commercial real estate property in Beijing for business operations. We will continue to make capital expenditures to meet our business growth.

Our operating lease commitments consist of the commitments under the lease agreements for our office premises. Contractual obligation as of December 31, 2024 for our operating lease commitments amounted to RMB45.5 million (US$6.2 million).

We intend to fund our existing and future material cash requirements with our existing cash balance and other financing alternatives. We will continue to make cash commitments, including capital expenditures, to support the growth of our business.

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financial position.

Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2024.

Holding Company Structure

Waterdrop Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our WFOE and the VIEs. As a result, the ability of Waterdrop Inc. to pay dividends depends upon dividends paid by our WFOE.

If our WFOE or any newly formed subsidiaries in mainland China incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our WFOE is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with the accounting standards and regulations in mainland China. Under the law in mainland China, each of our WFOE and the VIEs is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our WFOE may allocate a portion of its after-tax profits based on the accounting standards in mainland China to enterprise expansion funds and staff bonus and welfare funds at its discretion, and the VIEs may allocate a portion of their after-tax profits based on the accounting standards in mainland China to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. As of December 31, 2024, as our WFOE, almost all other subsidiaries in mainland China, the VIEs and the subsidiaries of the VIEs are in an accumulated loss position, no statutory reserve was appropriated. Our WFOE has not paid dividends and will not be able to pay dividends until it generates accumulated profits and meets the requirements for statutory reserve fund.

See "Item 4. Information on the Company-B. Business Overview- Technology and Infrastructure" and "Item 4. Information on the Company-B. Business Overview-Intellectual Property."

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period since January 1, 2025 that are reasonably likely to have a material effect on our 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.

For our critical accounting estimates, see "Item 5. Operating and Financial Review and Prospects-Critical Accounting Estimates."

See "Forward-Looking Information" on page 2 of this annual report.

Item 6.Directors, Senior Management and Employees

The following table sets forth information regarding our executive officers and directors.

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Mr. Peng Shen is our founder and has served as the chairman of our board of directors and chief executive officer since our inception, and is responsible for overseeing the overall strategy and business operations of Waterdrop. Prior to founding Waterdrop in 2016, Mr. Shen joined Meituan (HKSE: 03690) in January 2010 as one of its earliest management members. From July 2013 to April 2016, he was one of the founding team members of Meituan Waimai, where he was responsible for the early design of internet R&D, formulating operational rules, and establishing and managing the business system, helping Meituan Waimai develop into a leading on-demand delivery service application in China. In honor of Waterdrop's contributions to China's insurtech industry, innovative pharmaceutical CRO industry and other fields, Mr. Shen was awarded the Zhongguancun High-end Leading Entrepreneurial Talent Certificate by the Beijing Municipal Science and Technology Commission in 2019, named to Fortune China's "2021 40 Under 40 in China", the World Economic Forum's "2022 Young Global Leaders", and Forbes China's 2024 "New Era Influential Founders", and received the "2024 Outstanding Alumni Award" from Hong Kong Polytechnic University. Mr. Shen currently serves as Vice President of the Hong Kong New Quality Entrepreneurs Association, Vice President of the Beijing Young Entrepreneurs Association, Vice President of the Beijing Chaoyang District High-tech Enterprise Association, Vice President of the Alumni Association of the Zhejiang University-Hong Kong Polytechnic University Joint Center, the Industry Mentor at the School of Finance, Central University of Finance and Economics, and the Industry Mentor at Institute of Future Technology, Peking University. Since October 2023, Mr. Shen has also served as an Independent Non-Executive Director of J&T Express (HKSE: 01519). Mr. Shen received an EMBA from Tsinghua University School of Economics and Management, a PhD in Hotel and Tourism Management from Hong Kong Polytechnic University, and the Graduation Certificate of the First Cohort of the Tsinghua-Tencent Future-Tech Entrepreneur Program, jointly organized by Tsinghua University and Tencent.

Mr. Guang Yang is our co-founder, and has served as our director, vice president of finance since June 2022 and general manager of international business since March 2023. Mr. Yang also served as general manager of insurance marketplace from November 2016 to March 2023. Mr. Yang is responsible for our international business, strategy and commercial insights as well as our accounting, financial and internal control matters. Prior to co-founding Waterdrop in April 2016, Mr. Yang served as the director of the strategy and investment department of Meituan (HKSE: 03690) from March 2015 to August 2016. Prior to that, Mr. Yang served as a senior manager at China eCapital Partners and served as a senior consultant of the merger and acquisition transaction service team at Deloitte Touche Tohmatsu Limited. Mr. Yang received an honors degree in actuarial science specializing in finance from the University of Waterloo.

Mr. Wei Ran has served as our director and general manager of the insurance technology business since March 2023. He joined us in June 2016 as head of strategy and business analysis and was responsible for establishing our strategy and business analysis system and exploring new business initiatives since then. Before joining us, he worked as senior strategy analyst at Meituan Waimai, the food and grocery delivery business of Meituan (HKSE: 03690), from July 2015 to June 2016, where he was responsible for strategy and business analysis. Prior to that, he worked at Accenture Consulting, which provides consulting services to various enterprise clients, as a strategic consultant from July 2013 to June 2015, and participated in a number of digitalization projects for large and medium-sized enterprises in the energy and financial industries. Mr. Ran obtained a bachelor's degree in Economics from Shanghai Jiaotong University in June 2009, and a master's degree in Software Engineering from Peking University in June 2013.

Mr. Haiyang Yu has served as our director since October 2019. Mr. Yu has also served as a director of DouYu International Holdings Ltd (Nasdaq: DOYU) since May 2018 and a director of Kanzhun Ltd (NASDAQ: BZ; HKSE: 02076) since July 2019. Mr. Yu currently serves as the vice general manager of Tencent Investment. Prior to joining Tencent (HKSE: 00700) in August 2011, Mr. Yu worked as a senior associate at WI Harper Group from March 2010 to August 2011. Prior to that, Mr. Yu worked as an associate at China Growth Capital from April 2007 to February 2010. Mr. Yu obtained a bachelor's degree in civil engineering from Tsinghua University in 2005.

Mr. Kai Huang has served as our director since March 2019. Mr. Huang currently serves as an executive director of Boyu Capital. Prior to joining Boyu Capital in June 2011, Mr. Huang worked as a senior accountant at Ernst & Young Consulting (China) from September 2010 to June 2011, and an accountant at Ernst & Young Huaming Accounting Firm from September 2008 to September 2010. Mr. Huang received a bachelor's degree in accounting from Shanghai Jiao Tong University.

Ms. Wenjie Guan has served as our director since September 2022. Ms. Guan currently serves as Head of Corporate Development APAC at Swiss Re, one of the world's leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, and a non-executive director of Alltrust Insurance Company. Prior to joining Swiss Re in May 2016, Ms. Guan had eight years of experience in investment banking and served at Macquarie, UBS and Jefferies. Ms. Guan received a master's degree in Engineering with first class honors from the University of Oxford and is a CFA charterholder.

Mr. Heping Feng has served as our independent director since May 2021. Mr. Feng has served as the chairman of Beijing Daohexin Management Consulting Co., Ltd. since September 2017. From September 2014 to March 2017, Mr. Feng served as a senior advisor in PricewaterhouseCoopers. From April 2011 to August 2014, Mr. Feng served as the vice chairman of Morgan Stanley (China). Prior to joining Morgan Stanley (China), Mr. Feng was an audit partner in PricewaterhouseCoopers from 1997 to 2011. From 1993 to 1997, Mr. Feng served as an audit manager in Arthur Andersen LLP. From 1985 to 1993, Mr. Feng served as an auditor in China Accounting and Financial Management Consulting Company. Mr. Feng currently serves as an independent director of Tahoe Life Insurance Company Limited, Tahoe Life Insurance Company (Macau) Limited and Yinhua Fund Management Co., Ltd. Mr. Feng received a bachelor's degree in accounting from Shanxi University of Finance and Economics in 1982 and a master's degree in westeaccounting from the Institute of Fiscal Science, Ministry of Finance of the PRC in 1985. He is a Certified Public Accountant in China.

Mr. Chenyang Wei has served as our independent director since May 2021. Mr. Wei has served as the Associate Dean of Institute for Fintech Research, Tsinghua University and Director of China Insurance and Pension Research Center, the National Institute of Financial Research, Tsinghua University PBC School of Finance since April 2019. From December 2016 to March 2019, Mr. Wei served as a senior managing director and chief U.S. economist in Zenity Asset Management Inc., a silicon valley based asset management firm focusing on multi-sector asset allocation in the U.S. financial market. Prior to joining Zenity, Mr. Wei served as a director and head of credit research at AIG from August 2012 to December 2016. From June 2011 to August 2012, Mr. Wei was a senior economist with Federal Reserve Bank of Philadelphia. From 2006 to 2011, Mr. Wei was an economist with Federal Reserve Bank of New York. Mr. Wei is also an independent director of PICC Property and Casualty Company Limited (HKSE: 02328) and HSBC Life Insurance Company Limited. Mr. Wei received a bachelor's degree in finance from Tsinghua University in 1996, a master's degree in economics from McCombs School of Business, University of Texas at Austin in 2000, and a Ph.D. in finance from Leonard N. SteSchool of Business, New York University in 2006.

Mr. Chen Lin has served as our independent director since March 2025. Mr. Lin has served at various positions at The University of Hong Kong, including as the Chair of Finance and Stelux Professor in Finance since August 2013, and Associate Vice President since January 2023. In addition, Mr. Lin has served as an independent non-executive director for several companies, including Artificial Intelligent Interconnection Technology Co., Ltd. since December 2024, Beijing 51WORLD Digital Twin Technology Co., Ltd. since September 2024, Shiyue Daotian Group Co., Limited (HKEX: 09676) since October 2023, Allianz Global Investors Fund Management Co., Ltd. since September 2023, CNCB (Hong Kong) Investment Limited since January 2022, and China Merchants Land Asset Management Co., Limited (the manager of China Merchants Commercial REIT (HKEX: 01503)) since December 2019. Mr. Lin is a non-official member of the Task Force on Promoting Web3 Development of the Government of Hong Kong since July 2023, a Fellow of the Academy of Social Sciences, UK since March 2023, a Member of the Academia Europaea since June 2022, a member of the Hang Seng Index Advisory Committee since August 2021, a member of the Fintech Advisory Group of the Securities and Futures Commission since March 2021 and an advisory member of the Hong Kong Institute for Monetary and Financial Research of the Hong Kong Monetary Authority since June 2019. Mr. Lin also served as a member of the Currency Board Sub-Committee of the Exchange Fund Advisory Committee of Hong Kong from January 2017 to December 2022. Mr. Lin obtained his PhD degree in economics in August 2006, master of arts degree in economics in August 2005 and master of business administration degree (MBA) in May 2004 from University of Florida in the United States. He received his bachelor's degree in engineering from South China University of Technology in July 2000.

Ms. Xiaoying Xu has served as the head of the finance since December 2022. Prior to joining us, Ms. Xu worked at Meituan (HKSE: 03690) from January 2011 to December 2022. She was in charge of the establishment of the financial department of Meituan, and participated in the development of Meituan from its early stages to the comprehensive development stages, by successively serving as the head of the finance department, the head of the finance department of the Meituan's financial platform and the head of the finance department of the Meituan's catering SaaS services. Prior to that, she worked in a foreign-invested company and an A-share listed company. Ms. Xu received a bachelor's degree from Renmin University of China and an EMBA from China Europe International Business School. Ms. Xu also holds ACCA and CMA certificates.

Ms. Xiaolei Sun has served as the head of human resources and organization development since January 2021 and is in charge of the human resources and organizational development of our company. Ms. Sun has more than ten years of experience in entrepreneurship and business management for companies in Internet-related industry. Before joining the Company in July 2019, Ms. Sun served as product director at Meituan Waimai, which provides food delivery services, and she was in charge of the Internet-related products, such as products for user and merchant management from March 2014 to July 2019. Prior to that, she worked as a senior product manager at Sohu.com Limited (NASDAQ: SOHU), China's leading online media, video, and game business group, from June 2010 to February 2014, where she was deeply involved in the incubation and promotion of Sohu News app. She received a bachelor of arts degree and a bachelor of laws degree from Xiamen University in 2008.

Mr. Xiaobo Zhou has served as the head of research and development since October 2020 and is responsible for the operation of research and development department. Prior to joining Waterdrop, Mr. Zhou served as the chief information officer at Beijing Zhongguancun Ronghui Financial Information Service Co., Ltd. from July 2017 to October 2020. Prior to that, Mr. Zhou served as a technology director at X Financial (NYSE: XYF) from June 2015 to May 2017, where he led the research and development team. Previously, Mr. Zhou worked at Baidu Inc. (NASDAQ: BIDU and HKEX: 09888), where he was responsible for the backend development in Baidu's system security department. Prior to that, Mr. Zhou worked at Tencent (HKEX: 00700) from July 2008 to October 2012. Mr. Zhou received a PhD in communication and information systems from University of Science and Technology of China.

Ms. Nian Liu has served as the head of legal since March 2021. Before joining our company, Ms. Liu served as legal director at Legend Holdings Corporation (HKSE: 03396) from September 2017 to February 2021. Prior to that, Ms. Liu worked at Davis Polk & Wardwell LLP from August 2009 to June 2012 and from October 2013 to January 2017 and at Wilson Sonsini Goodrich & Rosati from February 2017 to July 2017. Ms. Liu obtained her bachelor's degree of law from Tsinghua University in July 2009 and master's degree of law from Harvard University in May 2013.

Compensation of Directors and Executive Officers

In 2024, we paid an aggregate of RMB4.7 million (US$0.6 million) in cash to our executive officers, and we paid cash compensation to our non-executive directors of RMB0.9 million (US$0.1 million). We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our subsidiaries in mainland China and the VIEs are required by law to make contributions equal to certain percentages of each employee's salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, for certain acts of the executive officer, such as continued failure to satisfactorily perform, willful misconduct or gross negligence in the performance of agreed duties, conviction or entry of a guilty or nolo contendere plea of any felony or any misdemeanor involving moral turpitude, or dishonest act that results in material to our detriment or material of the employment agreement. We may also terminate an executive officer's employment without cause upon 60-day advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as may be agreed between the executive officer and us. The executive officer may resign at any time with a 60-day advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer's employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) solicit from any customer doing business with us during the effective term of the employment agreement business of the same or of a similar nature to our business; (ii) solicit from any of our known potential customer business of the same or of a similar nature to that which has been the subject of our known written or oral bid, offer or proposal, or of substantial preparation with a view to making such a bid, proposal or offer; (iii) solicit the employment or services of, or hire or engage, any person who is known to be employed or engaged by us; or (iv) otherwise interfere with our business or accounts, including, but not limited to, with respect to any relationship or agreement between any vendor or supplier and us.

We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

Share Incentive Plans

2018 Share Incentive Plan

In March 2019, our shareholders and board of directors approved the 2018 Share Incentive Plan, as amended and restated, which we refer to as the 2018 Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to directors, employees and consultants, and promote the success of our business. The maximum aggregate number of Class A ordinary shares that may be issued under the 2018 Plan is 384,159,746 Class A ordinary shares. As of March 31, 2025, options to purchase a total of 80,449,790 Class A ordinary shares and 69,739,960 restricted share units were outstanding under the 2018 Plan.

The following paragraphs summarize the principal terms of the 2018 Plan.

Type of Awards. The 2018 Plan permits the awards of options, restricted shares, restricted share units or any other types of awards approved by the plan administrator or the board of directors.

Plan Administration. A committee appointed by the board of directors administers the 2018 Plan. The plan administrator determines the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award.

Award Agreement. Awards granted under the 2018 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, the provisions applicable in the event that the grantee's employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. We may grant awards to our directors, employees and consultants of our company. However, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our parent companies or subsidiaries.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the award agreement. Exercise Price. The plan administrator determines the exercise price for each award, which is stated in the award agreement.

Term of the Awards. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is ten years from the date of a grant.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2018 Plan or the award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment. Unless terminated earlier, the 2018 Plan has a term of ten years from its date of effectiveness. Our board of directors and the plan administrator have the authority to terminate, amend or modify the plan. However, no such action may adversely affect in any material way any awards previously granted without the written consent of the participant.

2021 Share Incentive Plan

In April 2021, our shareholders and board of directors approved the 2021 Share Incentive Plan, as amended and restated, which we refer to as the 2021 Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to directors, employees and consultants, and promote the success of our business. The maximum aggregate number of Class A ordinary shares that may be issued pursuant to all awards under the 2021 Plan is initially 80,508,501 Class A ordinary shares, plus an annual increase on the first day of each year during the ten-year term of the plan commencing with the year beginning January 1, 2022, by an amount equal to 2% of the total number of shares issued and outstanding on an as-converted fully diluted basis on the last day of the immediately preceding year, or an lessor amount as may be determined by the board of directors. As of March 31, 2025, 53,462,030 restricted share units were outstanding under the 2021 Plan.

The following paragraphs summarize the principal terms of the 2021 Plan.

Types of Awards. The 2021 Plan permits the awards of options, restricted shares, restricted share units or any other type of awards approved by the plan administrator or the board of directors.

Plan Administration. Our board of directors or a committee of one or more members of the board of directors will administer the 2021 Plan. The committee or the full board of directors, as applicable, determines the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award.

Award Agreement. Awards granted under the 2021 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, the provisions applicable in the event that the grantee's employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. We may grant awards to our employees, directors and consultants of our company. However, we may grant options that are intended to qualify as incentive share options only to our employees and employees of our subsidiaries.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the award agreement. Exercise Price. The plan administrator determines the exercise price for each award, which is stated in the award agreement.

Term of the Awards. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is ten years from the date of a grant.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2021 Plan or the award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment. Unless terminated earlier, the 2021 Plan has a term of ten years from its date of effectiveness. Our board of directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously granted without the written consent of the participant.

The following table summarizes, as of March 31, 2025, the number of ordinary shares underlying outstanding options that we granted to our directors and executive officers.

Note

As of March 31, 2025, our employees other than our directors and officers as a group held options to purchase 56,822,820 Class A ordinary shares, with exercise prices ranging from US$0.003 per share to US$0.08 per share, and 80,557,310 restricted share units.

Board of Directors

Our board of directors consists of nine directors. A director is not required to hold any shares in our company by way of qualification. A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or transaction with our company is required to declare the nature of his interest at a meeting of our directors. Subject to the New York Stock Exchange rules and disqualification by the chairman of the board meeting, a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein, and if he does so his vote shall be counted and he shall be counted in the quorum at any meeting of our directors at which any such contract or transaction or proposed contract or transaction is considered, provided (i) such director, if his or her interest in such contract or arrangement is material, has declared the nature of his or her interest at the earliest meeting of the board at which it is practicable for him or her to do so, either specifically or by way of a general notice and (ii) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. Our directors may exercise all the powers of our company to raise or borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.

Committees of the Board of Directors

We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee's members and functions are described below.

Audit Committee. Our audit committee consists of Heping Feng, Chenyang Wei and Chen Lin. Heping Feng is the chairman of our audit committee. We have determined that Heping Feng, Chenyang Wei and Chen Lin satisfy the "independence" requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act. We have determined that Heping Feng qualifies as an "audit committee financial expert." The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

Compensation Committee. Our compensation committee consists of Chenyang Wei, Peng Shen and Heping Feng. Chenyang Wei is the chairman of our compensation committee. We have determined that Chenyang Wei and Heping Feng satisfy the "independence" requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Peng Shen, Chenyang Wei and Heping Feng. Peng Shen is the chairperson of our nominating and corporate governance committee. Chenyang Wei and Heping Feng satisfy the "independence" requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:

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. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth Courts have moved toward an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

Terms of Directors and Officers

Our directors may be elected by an ordinary resolution of our shareholders. Alternatively, our board of directors may, by the affirmative vote of a simple majority of the directors present and voting at a board meeting appoint any person as a director to fill a casual vacancy on our board or as an addition to the existing board. Our directors are not automatically subject to a term of office and hold office until such time as they are removed from office by an ordinary resolution of our shareholders. In addition, a director will cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without special leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.

Our officers are appointed by and serve at the discretion of the board of directors, and may be removed by our board of directors.

We had 2,719, 2,960 and 3,057 full-time employees as of December 31, 2022, 2023 and 2024, respectively. Substantially all of our full-time employees are located in China. The following table sets forth the number of our full-time employees as of December 31, 2024:

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Our success depends on our ability to attract, motivate, train and retain qualified personnel. We believe we offer our employees competitive compensation packages and an environment that encourages self-development and, as a result, have generally been able to attract and retain qualified employees. We have established comprehensive training programs covering new employee training, customized training as well as leadership training. Depending on the position, employee reviews are conducted either quarterly or annually.

As required by laws and regulations in mainland China, we participate in various employee social security plans that are organized by municipal and provincial governments including, among other things, pension, medical insurance, unemployment insurance, maternity insurance, work-related injury insurance and housing fund plans through a benefit contribution plan mandated by the PRC government. We are required under the law in mainland China to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.

We enter into standard employment agreements, as well as confidentiality and non-compete agreements with our employees in accordance with market practice.

We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes. None of our employees are represented by a collective bargaining agreements. Working together, our employees build our corporate culture that cares for individuals, fosters innovation, pursues credibility and integrity, and embraces changes, and has significantly contributed to our achievements.

Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares on an as-converted basis as of March 31, 2025 by:

The calculations in the table below are based on 2,814,720,121 Class A ordinary shares (excluding 467,536,400 Class A ordinary shares, comprising of Class A ordinary shares issued to the depositary for bulk issuance of ADSs and reserved for future issuances upon the exercise or vesting of awards granted under share incentive plans, and Class A ordinary shares in the form of ADSs held in treasury) and 801,904,979 Class B ordinary shares, issued and outstanding as of March 31, 2025.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

Notes:

The registered address of Neptune Max Holdings Limited and First Principles Z Holdings Limited is Sertus Chambers, P.O. Box 905, Quastisky Building, P.O. Box 2221, Road Town, Tortola, British Virgin Islands.

The registered address of Proton Fortune Holdings Limited is Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.

To our knowledge and with reference to the addresses in our shareholder register, as of March 31, 2025, none of our ordinary shares are held by record holders in the United States. There may be beneficial owners of our ADSs in the United States.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

F. Disclosure of Registrant's Action to Recover Erroneously Awarded Compensation

Not applicable.

Item 7.Major Shareholders and Related Party Transactions

Please refer to "Item 6. Directors, Senior Management and Employees-E. Share Ownership."

Contractual Arrangements with the Variable Interest Entities and Their Respective Shareholders

See "Item 4. Information on the Company-C. Organizational Structure."

Employment Agreements and Indemnification Agreements

See "Item 6. Directors, Senior Management and Employees-B. Compensation."

Share Incentive Plans

See "Item 6. Directors, Senior Management and Employees-B. Compensation."

Other Related Party Transactions

Transactions with Tencent Group. Tencent Group is one of our investors. We engage Weixin Pay as one of our payment processing platforms to collect payment from our insurance consumers and users on our crowdfunding platform, where Tencent Group charges service fee for each transaction occurred. For the years ended December 31, 2022, 2023 and 2024, we paid payment processing fee to Tencent Group of RMB27.8 million, RMB23.8 million and RMB22.0 million (US$3.0 million), respectively. Tencent Group also provides marketing service to us, which amounted to RMB20.7 million, RMB79.5 million and RMB5.3 million (US$0.7 million) in 2022, 2023 and 2024, respectively. In addition, Tencent Group provides cloud technology services to us, which amounted to RMB35.3 million, RMB31.4 million and RMB30.7 million (US$4.2 million) for the years ended December 31, 2022, 2023 and 2024, respectively. As of December 31, 2022, 2023 and 2024, we had amount due to Tencent Group of RMB11.6 million, RMB9.5 million and RMB10.6 million (US$1.5 million), respectively.

We provide advertising services to Tencent Group, which amounted to RMB1.0 million, RMB0.6 million and RMB1.1 million (US$0.2 million) in 2022, 2023 and 2024, respectively. We had amount due from Tencent Group of RMB357.8 thousand, RMB64.7 thousand and RMB257.4 thousand (US$35.3 thousand) as of December 31, 2022, 2023 and 2024, respectively.

Shareholders Agreement

We entered into our fifth amended and restated shareholders agreement on November 20, 2020, with our shareholders, which consist of holders of ordinary shares and preferred shares. The fifth amended and restated shareholders agreement provides for certain shareholders' rights, including information rights, preemptive rights, right of first refusal and co-sale rights, drag along rights and contains provisions governing our board of directors and other corporate governance matters. The special rights other than registration rights, as well as the corporate governance provisions, automatically terminated upon the completion of our IPO.

Registration Rights

We have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the shareholders agreement.

Demand Registration Rights. Holders of at least 25% of the voting power of the then outstanding registrable securities held by all such holders may request in writing that we effect a registration of at least 20%, or any less percentage if the anticipated gross proceeds would exceed US$5,000,000, of the registrable securities. Upon such a request, we shall promptly give notice of such requested registration to the other shareholders and thereupon shall use reasonable best efforts to effect, as soon as practicable, the registration under the Securities Act of all registrable securities that the holders request to be registered and included in such registration by written notice given by such holders to us within twenty days after receipt of our notice of the demand registration. However, we are not obliged to effect any such registration if we have, within the six month period preceding the date of such request, already effected a registration under the Securities Act in which the Holders had an opportunity to participate. We are obligated to effect no more than two demand registrations that have been declared effective. Further, if the registrable securities are offered by means of an underwritten offering and the underwriters advise us that marketing factors require a limitation of the number of securities to be underwritten, the number of registrable securities that may be included in the underwriting shall be reduced as required by the underwriters and allocated among the holders of registrable securities on a pro rata basis according to the number of registrable securities then outstanding held by each holder requesting registration; provided that at least 20%, or any lesser percentage if the anticipated gross proceeds would exceed US$5,000,000, of registrable securities requested to be registered shall be so included, but only after first excluding all other securities from the registration and underwritten offering.

Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities, we shall offer shareholders an opportunity to include in the registration all or any part of the registrable securities held by such holders. If the managing underwriters of any underwritten offering determine that marketing factors require a limitation of the number of shares to be underwritten, and the number of shares that may be included in the registration and the underwriting shall be allocated (i) first, to us, (ii) second, to each holder requesting inclusion of its registrable securities in such registration statement on a pro rata basis based on the total number of registrable securities then held by each such holder; provided that at least 25% of the registrable securities requested by the holders to be included in the underwriting and registration shall be so included and all shares that are not registrable securities shall first be excluded from such registration and underwriting before any registrable securities are so excluded.

Form F-3 Registration Rights. Our shareholders may request us in writing to file an unlimited number of registration statements on Form F-3 if we qualify for registration on Form F-3. We have a right to defer filing of a registration statement for the period during which such filing would be materially detrimental to us or our members on the condition that we furnish to the holders requesting registration a certificate signed by our chief executive officer stating that in the good faith judgment of our board of directors, it would be materially detrimental to us and our shareholders for such registration statement to be filed in the near future. However, we cannot exercise the deferral right more than once during any 12-month period for a period of not more than 60 days and cannot register any other securities during such 60-day period. We are obligated to effect no more than two demand registrations that have been declared effective within any 12-month period.

Expenses of Registration. We will bear all registration expenses, other than underwriting discounts and selling commissions applicable to sale of registrable securities. However, expenses in excess of US$25,000 of any special audit required in connection with a demand registration shall be borne pro rata by the holders participating in such registration.

Not applicable.

Item 8.Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal Proceedings

We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management's time and attention.

On September 14, 2021, a complaint was filed in the U.S. District Court for the SoutheDistrict of New York, or the District Court, against our company and certain of our company's executives and directors, as well as our authorized process agent in the U.S. and IPO underwriters, alleging violations of the Securities Act of 1933 in relation to our company's IPO. The case is captioned Sandoz v. Waterdrop Inc. et al, 1:21-cv-07683-VSB. The plaintiff sought to represent all purchasers of our company's American depositary shares in or traceable to the IPO. On December 8, 2021, the District Court appointed a lead plaintiff and approved a lead plaintiff counsel. On February 21, 2022, the lead plaintiff filed an amended complaint. On April 22, 2022, our company filed a motion to dismiss the amended complaint. On February 3, 2023, the District Court granted our motion to dismiss in its entirety and dismissed the amended complaint with prejudice. On March 6, 2023, the lead plaintiff filed a notice to appeal the District Court's February 3, 2023 order and judgment to the U.S. Court of Appeals for the Second Circuit. On January 16, 2024, the U.S. Court of Appeals for the Second Circuit issued a summary order and judgment, affirming the District Court's order and judgment. Also see "Item 3. Key Information-D. Risk Factors-Risks Related to Our Business and Industry-Regulatory actions, legal proceedings and customer complaints against us could harm our reputation and have a material adverse effect on our business, results of operations, financial condition and prospects."

Dividend Policy

Our board of directors has discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided always that, in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

In March 2024, our board of directors approved a special cash dividend of US$0.04 per ADS or US$0.004 per ordinary share to shareholders of record as of the close of business on April 19, 2024. The aggregate payment amounted to approximately US$14.8 million. In September 2024, our board of directors approved another special cash dividend of US$0.02 per ADS or US$0.002 per ordinary share to shareholders of record as of the close of business on November 5, 2024. The aggregate payment amounted to approximately US$7.3 million. In March 2025, our board of director approved another cash dividend of US$0.02 per ADS or US$0.002 per ordinary share, for a total amount of approximately US$7.3 million, to shareholders of record as of the close of business on April 11, 2025. The payment date is expected to be on or around April 30, 2025 for holders of ordinary shares and on or around May 2, 2025 for holders of ADSs.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in mainland China for our cash requirements, including any payment of dividends to our shareholders. Regulations in mainland China may restrict the ability of our subsidiaries in mainland China to pay dividends to us. See "Item 4. Information on the Company-B. Business Overview-Regulation-Regulations on Dividend Distribution."

If we pay any dividends on our Class A ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars.

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

Item 9.The Offer and Listing

Our ADSs have been listed on the New York Stock Exchange since May 7, 2021. Our ADSs trade under the symbol "WDH." Each ADS represents ten of our Class A ordinary shares.

Not applicable.

Our ADSs have been listed on the New York Stock Exchange since May 7, 2021 under the symbol "WDH."

Not applicable.

Not applicable.

Not applicable.

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Item 10.Additional Information

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Not applicable.

The following are summaries of material provisions of our currently effective memorandum and articles of association and of the Companies Act, insofar as they relate to the material terms of our ordinary shares.

Objects of Our Company. Under our current memorandum and articles of association, the objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the laws of the Cayman Islands.

Ordinary Shares. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share shall entitle the holder thereof to one vote on all matters subject to vote at our general meetings, and each Class B ordinary share shall entitle the holder thereof to nine votes on all matters subject to vote at our general meetings. Our ordinary shares are issued in registered form and are issued when registered in our register of members. We may not issue shares to bearer. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

Conversion. Class B ordinary shares may be converted into the same number of Class A ordinary shares at the option of the holders thereof at any time, while Class A ordinary shares cannot be converted into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of Class B ordinary shares by a holder thereof to any person other than our founder, chairman and chief executive officer, Mr. Peng Shen, one of his affiliates or any other "Founder Affiliate" as defined in our current memorandum and articles of association, or upon a change of control of the ultimate beneficial ownership of any Class B ordinary share to any person other than Mr. Shen, one of his affiliates or any other "Founder Affiliate" as defined in our current memorandum and articles of association, such Class B ordinary shares shall be automatically and immediately converted into the same number of Class A ordinary shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared by our shareholders by ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount recommended by our directors). Our current memorandum and articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

Voting Rights. Holders of Class A ordinary shares and Class B ordinary shares shall, at all times, vote together as one class on all matters submitted to a vote by the members at any general meeting of the Company. Each Class A ordinary share shall be entitled to one vote on all matters subject to the vote at general meetings of our Company, and each Class B ordinary share shall be entitled to nine votes on all matters subject to the vote at general meetings of our Company. Voting at any meeting of shareholders is by show of hands unless a poll (before or on the declaration of the result of the show of hands) is demanded. A poll may be demanded by the chairperson of such meeting or any one shareholder present in person or by proxy.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding and issued ordinary shares cast at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our current memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary resolution.

General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act to call shareholders' annual general meetings. Our current memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.

Shareholders' general meetings may be convened by a majority of our board of directors. Advance notice of at least seven days is required for the convening of our annual general shareholders' meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third of all votes attaching to the issued and outstanding shares in our company entitled to vote at the general meeting.

The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company's articles of association. Our current memorandum and articles of association provide that upon the requisition of any one or more of our shareholders who together hold shares which carry in aggregate not less than one-third of all votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our current memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

Transfer of Ordinary Shares. Subject to the restrictions set out in our current memorandum and articles of association as set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, after compliance with any notice required of NYSE, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.

Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.

Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our Company's profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares issued and outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares. If at any time, our share capital is divided into different classes of shares, the rights attached to any class may be materially adversely varied with the consent in writing of the holders of at least two-thirds (2/3) of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued shall not, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class by the Company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.

Issuance of Additional Shares. Our current memorandum and articles of association authorize our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent out of available authorized but unissued ordinary shares.

Our current memorandum and articles of association also authorize our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

Our board of directors may issue preferred shares without action by our shareholders to the extent out of authorized but unissued preferred shares. Issuance of these shares may dilute the voting power of holders of ordinary shares.

Inspection of Books and Records. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our register of members or our corporate records (other than our memorandum and articles of association, our register of mortgages and charges, and special resolutions passed by our shareholders). However, we will provide our shareholders with annual audited financial statements. See "Where You Can Find Additional Information."

Anti-Takeover Provisions. Some provisions of our current memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our current memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:

"Limited liability" means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

Exclusive Forum. Unless we consent in writing to the selection of an alternative forum, the United States District Court for the SoutheDistrict of New York (or, if the United States District Court for the SoutheDistrict of New York lacks subject matter jurisdiction over a particular dispute, the state courts in New York County, New York) shall be the exclusive forum within the United States for the resolution of any complaint asserting a cause of action arising out of or relating in any way to the federal securities laws of the United States, regardless of whether such legal suit, action, or proceeding also involves parties other than us. Any person or entity purchasing or otherwise acquiring any share or other securities in our company, or purchasing or otherwise acquiring American depositary shares issued pursuant to deposit agreements, shall be deemed to have notice of and consented to the provisions of this article. Without prejudice to the foregoing, if the provision in this article is held to be illegal, invalid or unenforceable under applicable law, the legality, validity or enforceability of the rest of articles of association shall not be affected and this article shall be interpreted and construed to the maximum extent possible to apply in the jurisdiction with whatever modification or deletion may be necessary so as best to give effect to our intention.

Differences in Corporate Law

The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory enactments and accordingly there are significant differences between the Companies Act and the current Companies Act of England. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) "merger" means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a "consolidation" means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company's articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a "parent" of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provided that the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement between the company and its creditors (or any class of them) or its members (or any class of them), provided that (i) any such arrangement with creditors is approved by a majority in number of the creditors (or class of creditors) with whom the arrangement is to be made, who must in addition represent 75% in value of such creditors (or class of creditors), and (ii) any such arrangement with members is approved by 75% in value of the members (or class of members) with whom the arrangement is to be made, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. Any such arrangement which is approved by such requisite majorities as aforesaid, and which is sanctioned by the Grand Court, will be binding on all the creditors (or class of creditors) or members (or class of members), as the case may be, and also on the company. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the "squeeze out" of dissentient minority shareholders upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

Shareholders' Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge actions where:

Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company's memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our current memorandum and articles of association provide that that we shall indemnify our officers and directors against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such directors or officer, other than by reason of such person's dishonesty, willful default or fraud, in or about the conduct of our company's business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including, without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons with additional indemnification beyond that provided in our current memorandum and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Directors' Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company - a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our current memorandum and articles of association provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.

Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders; provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company's articles

of association. Our current memorandum and articles of association allow any one or more of our shareholders holding shares which carry in aggregate not less than one-third of the total number of votes attaching to all issued and the outstanding shares of our company entitled to vote at general meetings to requisition an extraordinary general meeting of our shareholders, in which case our board is obliged to convene an extraordinary general meeting and to put the resolutions so requisitioned to a vote at such meeting. Other than this right to requisition a shareholders' meeting, our current memorandum and articles of association do not provide our shareholders with any other right to put proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands exempted company, we are not obliged by law to call shareholders' annual general meetings.

Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation's certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder's voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our current memorandum and articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our current memorandum and articles of association, directors may be removed with or without cause, by an ordinary resolution of our shareholders. A director will also cease to be a director if he (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing; (iv) without special leave of absence from our board, is absent from meetings of our board for three consecutive meetings and our board resolves that his office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.

Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an "interested shareholder" for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target's outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target's board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.

Restructuring. A company may present a petition to the Grand Court of the Cayman Islands for the appointment of a restructuring officer on the grounds that the company:

(a) is or is likely to become unable to pay its debts; and

(b) intends to present a compromise or arrangement to its creditors (or classes thereof) either pursuant to the Companies Act, the law of a foreign country or by way of a consensual restructuring.

The Grand Court may, among other things, make an order appointing a restructuring officer upon hearing of such petition, and any restructuring officer so appointed shall have such powers and carry out such functions as the court may order. At any time (i) after the presentation of a petition for the appointment of a restructuring officer but before an order for the appointment of a restructuring officer has been made, and (ii) when an order for the appointment of a restructuring officer is made, until such order has been discharged, no suit, action or other proceedings (other than criminal proceedings) shall be proceeded with or commenced against the company, no resolution to wind up the company shall be passed, and no winding up petition may be presented against the company, except with the leave of the court and subject to such terms as the court may impose. However, notwithstanding the presentation of a petition for the appointment of a restructuring officer or the appointment of a restructuring officer, a creditor who has security over the whole or part of the assets of the company is entitled to enforce the security without the leave of the court and without reference to the restructuring officer appointed.

Dissolution; Winding up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation's outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by either an order of the courts of the Cayman Islands or by the board of directors.

Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our current memorandum and articles of association, if our share capital is divided into more than one class of shares, the rights attached to any such class may, subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing of the holders of at least two-thirds (2/3) of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject to any rights or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by the creation, allotment or issue of further shares ranking pad passu with or subsequent to them or the redemption or purchase of any shares of any class by our company. The rights of the holders of shares shall not be deemed to be materially adversely varied by the creation or issue of shares with preferred or other rights including, without limitation, the creation of shares with enhanced or weighted voting rights.

Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation's governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Act and our current memorandum and articles of association, our memorandum and articles of association may only be amended by a special resolution of our shareholders.

Rights of Non-resident or Foreign Shareholders. There are no limitations imposed by our current memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our current memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

Other than in the ordinary course of business and other than those described in "Item 4. Information on the Company" or "Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions" or elsewhere in this annual report, we have not entered into any material contract during the two years immediately preceding the date of this annual report.

See "Item 4. Information on the Company-B. Business Overview-Regulation-Regulations on Foreign Exchange."

The following summary of the material Cayman Islands, mainland China and U.S. federal income tax consequences of an investment in our ADSs or ordinary shares is based upon the laws and interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, mainland China and the United States.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to holders of our ADSs or ordinary shares levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Payments of dividends and capital in respect of our ordinary shares and ADSs will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or the ADSs, nor will gains derived from the disposal of our ordinary shares or the ADSs be subject to Cayman Islands income or corporate tax.

Mainland China Taxation

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of mainland China with a "de facto management body" within mainland China is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term "de facto management body" as the body that exercises full and substantial control over and overall management of the business, production, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, which provides certain specific criteria for determining whether the "de facto management body" of a mainland China-controlled enterprise that is incorporated offshore is located in mainland China. Although this circular only applies to offshore enterprises controlled by mainland China enterprises or mainland China enterprise groups, not those controlled by mainland China individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation's general position on how the "de facto management body" test should be applied in determining the tax resident status of all offshore enterprises. According to the circular, an offshore incorporated enterprise controlled by a mainland China enterprise or a mainland China enterprise group will be regarded as a mainland China tax resident by virtue of having its "de facto management body" in mainland China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in mainland China; (ii) decisions relating to the enterprise's financial and human resource matters are made or are subject to approval by organizations or personnel in mainland China; (iii) the enterprise's primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in mainland China; and (iv) at least 50% of voting board members or senior executives habitually reside in mainland China.

We believe that Waterdrop Inc. is not a mainland China resident enterprise for mainland China tax purposes. Waterdrop Inc. is not controlled by a mainland China enterprise or mainland China enterprise group and we do not believe that Waterdrop Inc. meets all of the conditions above. Waterdrop Inc. is a company incorporated outside mainland China. As a holding company, its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside mainland China. For the same reasons, we believe our other entities outside of mainland China are not mainland China resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the tax authorities in mainland China and uncertainties remain with respect to the interpretation of the term "de facto management body." There can be no assurance that the PRC government will ultimately take a view that is consistent with ours.

If the PRC tax authorities determine that Waterdrop Inc. is a mainland China resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% mainland China tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within mainland China. It is unclear whether our non-mainland China individual shareholders (including the ADS holders) would be subject to any mainland China tax on dividends or gains obtained by such non-mainland China individual shareholders in the event we are determined to be a mainland China resident enterprise. If any mainland China tax were to apply to such dividends or gains, it would generally apply at a rate of 20% (and such mainland China tax may be withheld at source in the case of dividends). Any mainland China income tax liability may be reduced under applicable tax treaties. However, it is unclear whether non-mainland China shareholders of Waterdrop Inc. would in practice be able to obtain the benefits of any tax treaties between their country of tax residence and mainland China in the event that Waterdrop Inc. is treated as a mainland China resident enterprise.

Provided that our Cayman Islands holding company, Waterdrop Inc., is not deemed to be a mainland China resident enterprise, holders of the ADSs and ordinary shares who are not mainland China residents will not be subject to mainland China income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares or ADSs. However, under Bulletin 7 and Bulletin 37, where a non-resident enterprise conducts an "indirect transfer" by transferring taxable assets, including, in particular, equity interests in a mainland China resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee, or the mainland China entity which directly owns such taxable assets may report to the tax authority such indirect transfer. Using a "substance over form" principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring mainland China tax. As a result, gains derived from such indirect transfer may be subject to mainland China enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a mainland China resident enterprise. However, sales of shares and ADSs by investors through a public stock exchange where such shares or ADSs are acquired on a public stock exchange are currently exempt from these indirect transfer rules under Bulletin 7 and Bulletin 37. We and our non-mainland China resident investors may be at risk of being required to file a retuand being taxed under Bulletin 7 and Bulletin 37, and we may be required to expend valuable resources to comply with Bulletin 7 and Bulletin 37, or to establish that we should not be taxed under these circulars. See "Item 3. Key Information-D. Risk Factors-Risks Related to Doing Business in China-We face uncertainties with respect to indirect transfers of equity interests in mainland China resident enterprises by their non-mainland China holding companies."

United States Federal Income Tax Considerations

The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of the ADSs or ordinary shares by a U.S. Holder (as defined below). This summary applies only to U.S. Holders that hold the ADSs or ordinary shares as "capital assets" (generally, property held for investment) under the U.S. Internal Revenue Code of 1986 or the Code, as amended. This discussion is based upon applicable provisions of the Code, Treasury regulations promulgated thereunder, or Treasury Regulations, and pertinent judicial decisions and interpretive rulings of the Internal Revenue Service, or the IRS, all of which are subject to differing interpretations or change, possibly with retroactive effect. There can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address any considerations relating to U.S. federal estate, gift, the Medicare tax on certain net investment income, any alternative minimum tax, or any state, local and non-U.S. tax. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular U.S. Holders in light of their individual circumstances or to persons in special tax situations such as:

Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of the ADSs or ordinary shares.

General

For purposes of this discussion, a "U.S. Holder" is a beneficial owner of the ADSs or ordinary shares that is, for U.S. federal income tax purposes:

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding the ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding an investment in the ADSs or ordinary shares.

For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of the ADSs will be treated in this manner. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to U.S. federal income tax.

Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be a PFIC for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of "passive" income or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are generally categorized as a passive asset and the company's goodwill and other unbooked intangibles are taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.

Although the law in this regard is not entirely clear, we treat the VIEs and their subsidiaries as being owned by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. As a result, we consolidate their result of operations in our consolidated U.S. GAAP financial statements.

Based upon the nature and composition of our assets (in particular, the retention of substantial amounts of cash and investments), and the market price of our ADSs, we believe that we were a PFIC for U.S. federal income tax purposes for the taxable year ended December 31, 2024, and we will likely be a PFIC for our current taxable year unless the market price of our ADSs increases and/or we invest a substantial amount of the cash and other passive assets we hold in assets that produce or are held for the production of active income.

If we are a PFIC for any year during which a U.S. Holder holds the ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds the ADSs or ordinary shares, unless we were to cease to be a PFIC and such U.S. Holder were to make a "deemed sale" election with respect to the ADSs or ordinary shares. However, if we cease to be a PFIC, provided that a U.S. Holder has not made a mark-to-market election, as described below, such U.S. Holder may avoid some of the adverse effects of the PFIC regime by making a "deemed sale" election with respect to the ADSs or ordinary shares, as applicable. If such election is made, such U.S. Holder will be deemed to have sold our ADSs or ordinary shares such U.S. Holder holds at their fair market value and any gain from such deemed sale would be subject to the rules described below under "Passive Foreign Investment Company Rules." After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, the ADSs or ordinary shares with respect to which such election was made will not be treated as shares in a PFIC and such U.S. Holder will not be subject to the rules described below with respect to any "excess distribution" such U.S. Holder receives from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares. The rules dealing with deemed sale elections are very complex. Each U.S. Holder should consult its tax advisors regarding the possibility and considerations of making a deemed sale election.

Dividends

Subject to the discussion below under "Passive Foreign Investment Company Rules," the gross amount of any distributions paid on the ADSs or ordinary shares (including the amount of any mainland China tax withheld) out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a "dividend" for U.S. federal income tax purposes. Dividends received on the ADSs or ordinary shares will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from U.S. corporations.

Individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gain tax rate applicable to "qualified dividend income"; provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares on which the dividends are paid are readily tradable on an established securities market in the United States, or, in the event that we are deemed to be a mainland China resident enterprise under the tax law in mainland China, we are eligible for the benefit of the United States-China income tax treaty, or the Treaty, (2) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year, and (3) certain holding period and other requirements are met. Our ADSs are currently listed on the New York Stock Exchange. We believe that the ADSs will be readily tradable on an established securities market in the United States for so long as our ADSs continue to be listed on the New York Stock Exchange. There can be no assurance that the ADSs will continue to be considered readily tradable on an established securities market in later years. Because the ordinary shares will not be listed on a U.S. exchange, we do not believe that dividends received with respect to ordinary shares that are not represented by ADSs will be treated as qualified dividends. Non-corporate U.S. Holders are urged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or ordinary shares.

In the event that we are deemed to be a mainland China resident enterprise under the PRC Enterprise Income Tax Law (see "Item 10. Additional Information-E. Taxation-Mainland China Taxation"), we may be eligible for the benefits of the Treaty. If we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by the ADSs, and regardless of whether the ADSs are readily tradable on an established securities market in the United States, would be eligible for the reduced rates of taxation described in the preceding paragraph, provided that certain holding period and other requirements are met and that we are neither a PFIC nor treated as such with respect to a U.S. Holder for the taxable year in which the dividend is paid and the preceding taxable year.

For U.S. foreign tax credit purposes, dividends paid on the ADSs or ordinary shares generally will be treated as income from foreign sources and generally will constitute passive category income. In the event that we are deemed to be a mainland China resident enterprise under the PRC Enterprise Income Tax Law, a U.S. Holder may be subject to mainland China withholding taxes on dividends paid on the ADSs or ordinary shares (see "Item 10. Additional Information-E. Taxation-Mainland China Taxation"). Depending on the U.S. Holder's particular facts and circumstances and subject to a number of complex conditions and limitations, mainland China withholding taxes on dividends that are non-refundable under the Treaty may be treated as foreign taxes eligible for credit against a U.S. Holder's U.S. federal income tax liability. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

As mentioned above, we believe that we were a PFIC for the taxable year ended December 31, 2024, and we will likely be classified as a PFIC for our current taxable year ending December 31, 2025. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced rate of taxation on dividends with respect to our ADSs or ordinary shares under their particular circumstances.

Sale or Other Disposition

Subject to the discussion below under "Passive Foreign Investment Company Rules," a U.S. Holder will generally recognize gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder's adjusted tax basis in such ADSs or ordinary shares. The gain or loss will generally be capital gain or loss. Any capital gain or loss will be long term if the ADSs or ordinary shares have been held for more than one year. The deductibility of a capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, which may limit the availability of foreign tax credits.

As described in "Item 10. Additional Information-E. Taxation-Mainland China Taxation," if we are deemed to be a mainland China resident enterprise under the PRC Enterprise Income Tax Law, gains from the disposition of the ADSs or ordinary shares may be subject to mainland China income tax and will generally be U.S. source, which may limit the ability to receive a foreign tax credit. If a U.S. Holder is eligible for the benefits of the Treaty, such holder may be able to elect to treat such gain as mainland China source income under the Treaty. If a U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply the Treaty, then such holder may not be able to claim a foreign tax credit arising from any mainland China tax imposed on the disposition of the ADSs or ordinary shares. The rules regarding foreign tax credits and deduction of foreign taxes are complex. U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular circumstances, including their eligibility for benefits under the Treaty, and the potential impact of the Treasury Regulations.

As mentioned above, we believe that we were a PFIC for the taxable year ended December 31, 2024, and we will likely be classified as a PFIC for our current taxable year ending December 31, 2025. U.S. Holders are urged to consult their tax advisors regarding the tax considerations of the sale or other disposition of our ADSs or ordinary shares under their particular circumstances.

Passive Foreign Investment Company Rules

If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any "excess distribution" that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder's holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:

If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and any of our subsidiaries, the VIEs or any of the subsidiaries of the VIEs is also a PFIC, which is a "lower-tier PFIC," such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries, the VIEs or any of the subsidiaries of the VIEs.

As an alternative to the foregoing rules, a U.S. Holder of "marketable stock" (as defined below) in a PFIC may make a mark-to-market election with respect to such stock. If a U.S. Holder makes a mark-to-market election with respect to the ADSs, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder's adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of the ADSs and we cease to be a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.

The mark-to-market election is available only for "marketable stock," which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter ("regularly traded") on a qualified exchange or other market, as defined in applicable Treasury Regulations. For this purpose, our ADSs, but not our ordinary shares, are listed on the New York Stock Exchange, which is a qualified exchange. Our ADSs should qualify as being regularly traded, but no assurances may be given in this regard.

Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder's indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.

We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.

If a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. U.S. Holders are urged to consult their tax advisor regarding the reporting requirements that may apply and U.S. federal income tax consequences of owning and disposing of the ADSs or ordinary shares if we are or become a PFIC, including the possibility of making a mark-to-market election and the unavailability of the election to treat us as a qualified electing fund.

Not applicable.

Not applicable.

We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required to file reports and other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four months after the end of each fiscal year, which is December 31. All information filed with the SEC can be obtained over the internet at the SEC's website at www.sec.gov. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish Citibank, N.A., the depositary of the ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders' meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders' meeting received by the depositary from us.

Not applicable.

Not applicable.

Item 11.Quantitative and Qualitative Disclosures about Market Risk

Foreign exchange risk

Substantially all of our net revenues and expenses are denominated in Renminbi. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in Renminbi, while our ADSs are traded in U.S. dollars.

The conversion of Renminbi into other currencies, including U.S. dollars, is based on rates set by the People's Bank of China. The Renminbi has fluctuated against other currencies, at times significantly and unpredictably. The value of Renminbi against other currencies is affected by changes in China's political and economic conditions and by China's foreign exchange policies, among other things. It is difficult to predict how market forces or government policies may impact the exchange rate between Renminbi and other currencies in the future.

To the extent that we need to convert the U.S. dollars for our operations, acquisitions, or for other uses within China, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. On the other hand, a decline in the value of the Renminbi against the U.S. dollar could reduce the U.S. dollar equivalent of our financial results, the value of your investment in the company and the dividends that we may pay in the future, if any, all of which may materially and adversely affect the prices of our ADS.

As of December 31, 2024, we had RMB-denominated cash and cash equivalents, restricted cash, short-term investments and long-term debt investments included in long-term investments of RMB1,923.9 million and U.S. dollar-denominated cash and cash equivalents, restricted cash, short-term investments and long-term debt investments included in long-term investments of US$305.3 million. Assuming we had converted RMB1,923.9 million into U.S. dollars at the exchange rate of RMB7.2993 for US$1.00 as of December 31, 2024, our U.S. dollar cash balance would have been US$568.9 million. If the Renminbi had depreciated by 10% against the U.S. dollar, our U.S. dollar-denominated cash balance would have been US$544.9 million instead. Assuming we had converted US$305.3 million into Renminbi at the exchange rate of RMB7.2993 for US$1.00 as of December 31, 2024, our RMB-denominated cash balance would have been RMB4,152.4 million. If the Renminbi had depreciated by 10% against the U.S. dollar, our RMB-denominated cash balance would have been RMB4,375.2 million instead.

Concentration of credit risk

Details of the customers accounting for 10% or more of net operating revenue are as follows, including the amount of net operating revenue and as percentages of total net operating revenue for the periods presented:

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Details of the customers which accounted for 10% or more of accounts receivable and contract assets are as follows, including the amount of accounts receivable and contract assets and as percentages of total accounts receivable and contract assets for the periods presented:

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We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts receivable.

Item 12.Description of Securities Other than Equity Securities

Not applicable.

Not applicable.

Not applicable.

Fees and Charges Our ADS holders May Have to Pay

As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:

​

As an ADS holder, you are also responsible to pay certain charges, such as:

ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person for whom the ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the depositary into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in tucharge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. Certain depositary fees and charges (such as the ADS services fee) may become payable shortly after the closing of the ADS offering. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes.

Fees and Other Payments Made by the Depositary to Us

The depositary may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary agree from time to time. Responsibility for payment of such fees, charges and reimbursements may from time to time be changed by agreement between us and the depositary. In the year ended December 31, 2024, we received payment of US$1.5 million from the depositary for our expenses incurred in connection with the establishment and maintenance of the ADR program.

Taxes

You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the depositary and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due.

The depositary may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by the applicable holder. The depositary and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary and to the custodian proof of taxpayer status and residence and such other information as the depositary and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.

PART II

Item 13.Defaults, Dividend Arrearages and Delinquencies

None.

Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds

Material Modifications to the Rights of Security Holders

None.

Use of Proceeds

The following "Use of Proceeds" information relates to the registration statement on Form F-1 for our IPO (File Number 333-255298), which was declared effective by the SEC on May 6, 2021. We raised US$334.8 million in net proceeds from our IPO after deducting underwriting commissions and discounts and the offering expenses payable by us. None of the transaction expenses included payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds from the IPO were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.

For the period from May 6, 2021, the date that the registration statement was declared effective by the SEC, to December 31, 2024, we used all of the net proceeds from our IPO to enhance and expand our operations in healthcare service and insurance business, for research and development and general corporate purposes.

There is no material change in the use of proceeds as described in the registration statement.

Item 15.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our chief executive officer and head of finance, carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of December 31, 2024. Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rule and forms and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

Based upon that evaluation, our management, with the participation of our chief executive officer and head of finance, has concluded that our disclosure controls and procedures were effective as of December 31, 2024.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2024. In making this assessment, it used the criteria established within the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework). Based on this assessment, our management has concluded that, as of December 31, 2024, our internal control over financial reporting was effective.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. As a company with less than US$1.235 billion in revenues for fiscal year of 2024, we qualify as an "emerging growth company" pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company's internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 16A.Audit Committee Financial Expert

Our board of directors has determined that Mr. Heping Feng, an independent director (under the standards set forth in Section 303A of the Corporate Governance Rules of the NYSE and Rule 10A-3 under the Exchange Act) and member of our audit committee, is an audit committee financial expert.

Item 16B.Code of Ethics

Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in April 2021. We have posted a copy of our code of business conduct and ethics on our website at ir.waterdrop-inc.com.

Item 16C.Principal Accountant Fees and Services

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods indicated.

The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu Certified Public Accountants LLP, including audit services, audit-related services, tax services and other services as described above, other than those for deminimis services which are approved by the audit committee prior to the completion of the audit.

Item 16D.Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On September 7, 2023, we announced a new share repurchase program, pursuant to which we were authorized to repurchase our own ordinary shares, in the form of ADSs, with an aggregate value of up to US$50 million during the 12-month period effective through September 6, 2024. By the completion of this share repurchase program in September 2024, we had purchased an aggregate of 11,405,423 ADSs at an aggregate consideration of US$13.7 million on the open market under this share repurchase program. On September 4, 2024, we announced a new share repurchase program, pursuant to which we were authorized to repurchase our own ordinary shares, in the form of ADSs, with an aggregate value of up to US$50 million during the 12-month period through September 9, 2025. As of March 31, 2025, we had purchased an aggregate of 3,700,252 ADSs at an aggregate consideration of US$4.6 million on the open market under this share repurchase program.

The following table sets forth information about our repurchases made in the year 2024 and the first three months of 2025 under the share repurchase programs described above.