Hanwha Life Insurance Co., Ltd. (A088350) Earnings Call Transcript & Summary

[Foreign Language] Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal Year 2020 third quarter earnings results by Hanwha Life Insurance. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2020 third quarter earnings results by Hanwha Life Insurance.

[Interpreted] Good morning. I am Choi Sang-Wook from the IR part at Hanwha Life Insurance. We provide consecutive interpretation in Korean and English during the earnings conference. You can find the presentation materials on our IR website. Today, Mr. [ Yoon Jong-Kook ] Head of the Corporate Planning and Administration team, will give a presentation for the third quarter of 2020, which will be followed by the Q&A session. Now I will hand over to Mr. [ Yoon ].

[Interpreted] Good morning. I am [ Yoon Jong-Kook ], Head of the Corporate Planning and Administration team. Due to some internal schedule issues, I am going to present on behalf of CFO, Hong Jeong Pyo. Today's presentation was prepared solely for the convenience of investors in accordance with the separate financial statements under K-IFRS, and some numbers are subject to change after full audit. I would now like to begin the report. Page 1 is key financials. In the third quarter of 2020, premium income and new business APE grew 12.8% and 1% year-on-year, respectively. In particular, other protection APE posted a 111.4% growth on year. Despite COVID-19-related challenges and economic slowdown, the net income in the third quarter of 2020 posted a 7.4% growth year-on-year to KRW 65.5 billion as the loss ratios improved, thanks to the growth of other protection sales, and the variable guarantee reserves were recovered, thanks to better investment yields from variable funds. The RBC ratio is stable at 265.4% on the back of strong valuation gains. Page 2 is on premium income, which was up 12.8% year-on-year, thanks to higher sales of retirement products. Protection-type premium income recorded a 3.3% growth on year, thanks to the continued strategy to maximize the value of new business. With the expanded sales of highly competitive other protection products, such as special cancer insurance and health insurance, the portion of other protection products in the production -- in the protection line has increased to 18%. On Page 3, in the third quarter of 2020, total APE was down slightly due to the reduction in the sale of savings products, but the portion of protection type in the total APE increased to 65%. The APE margin grew significantly to 47.8% on the back of preemptive lowering of expected rates twice in 2020. By product type, new business margin for protection type is 75.3%, 10.9% for annuities and 4.1% for savings. On Page 4, the APE breakdown by channel shows that the FP channel accounts for 56%; GA, 14%; and bancassurance, 27% in the third quarter of 2020. The portion of protection sales in the FP and GA channels was 92% and 91%, respectively. Recently, Hanwha Life announced the merger between Hanwha Life Asset and Hanwha Financial Asset, our GA subsidiaries, to strengthen the competitive edge in the growing GA market. With this move, we look forward to increasing our market leadership in the GA channel. The company will continue to enhance our sales and distribution capabilities by managing the channels flexibly in consideration of the market situation. Page 5 is on sales efficiency. In the third quarter, the 13th month and the 25th month persistency ratios recorded 81.9% and 58.9%, respectively, up 0.5 percentage points and 1.8 percentage points each, driven by the growth in other protection sales that cater to market needs. In addition, the 13th month FP retention ratio remains highest in the industry at 50% with the number of FPs up 10% on year to 19,852. On Page 6, the net income was up 7.4% year-on-year to record KRW 65.5 billion. While investment losses were KRW 78 billion, pretax income posted KRW 95.9 billion, thanks to solid core insurance income that includes KRW 73 billion of expense gains and KRW 124 billion of mortality gains. For your reference, investment losses reflect KRW 102 billion of equity impairment losses involving Woori financial holding and KRW 92 billion of recovery in the variable guarantee reserves. Page 7 is on core insurance income. In the third quarter of 2020, the loss ratio improved to 78.9%, thanks to a 2.7% growth in risk premiums. As a result, the mortality gains grew on year to KRW 123.8 billion. Hanwha Life posted expense ratio of 16.8% on the back of actual business expenses increasing as a result of greater sales, and expense income was KRW 73.4 billion. Page 8 is on investment. The investment portfolio is mainly composed of interest-bearing assets with 45% domestic bonds, 24% overseas securities and 24% loans. The asset under management for the general accounts is nearly KRW 100 trillion. In the third quarter, the investment yield posted 2.99%, mainly due to the equity impairment losses involving Woori financial holding, and the running yield on interest-bearing assets is 3.21%. Page 9 is on the bond portfolio. In the third quarter of 2020, the bond duration increased to 11.59 years as the portion of long-dated bonds, both domestic and overseas combined, increased to 90%. In order to respond to new regulations, we will continue to expand the asset duration through flexible investment strategies in consideration of domestic and global macroeconomic situations. As for portfolio quality, 97% of overseas bonds are rated single A or higher, and 96% of domestic bonds are rated AAA or higher. On Page 10, the loan portfolio consists of 44% alternative investments, 29% retail loans and 27% policy loans. Despite concerns over economic slowdown, the loan quality has been managed stably with the NPL ratio of 0.08% and a delinquency ratio of 0.2% in the third quarter. Page 11 is on the crediting rate and policy reserves. With the maturing of legacy policies, the fixed rate portion of rates higher than 6% fell to 25% of the total policy reserves. Also, the portion of floating reserves increased to 52%. As a result, the crediting rate was down 10 basis points on year to 4.44%, showing a continuous improvement trend. On Page 12, the RBC ratio in the third quarter achieved 265.4%, up 39.7 percentage points year-on-year, thanks to the increase in bond valuation gains. The duration gap narrowed to 0.08 year on the back of active ALM strategy, resulting in longer asset duration. We will continue to manage the duration gap stably to be ready for regulatory changes. Page 13 is on ESG management. Hanwha Life is striving for sustainable development of the business and society and working to create value for whole society. For instance, in order to facilitate innovative growth ecosystem through social and economic support, we're operating DREAMPLUS, Korea's first fintech start-up incubator; and DREAM HAUS, a shared housing project. Furthermore, we aim to return business proceeds back to society and achieve joint prosperity for all stakeholders. To this end, we're promoting social corporate responsibility through eco-friendly business practices, focusing on reducing carbon emissions in buildings and socially responsible investment focused on infrastructure and renewables. Thanks to these excellent practices for sustainability, Hanwha Life received the highest A grade in the life insurance industry in the ESG evaluation by Korea Corporate Governance Service in 2020. The final slide is on Life MD. The insurance industry is witnessing numerous changes, including digital transformation of the financial industry, transition to contactless services due to COVID-19 as well as changes in our lifestyles and work such as having multiple jobs or working as [ state ] workers. To respond to these changes and strengthen future competitiveness, Hanwha Life launched Lifeplus and [ Hello ] applications. Furthermore, we launched Life MD, the industry's first digital sales channel, on October 19. Life MD has digitalized the entire sales process from FP training all the way to policy contract signing, thus supporting sales activities by anyone, anytime, anywhere. We expect Life MD to help improve operational efficiency, attract the millennials to the insurance market and maximize the first-mover effect in this new channel. Hanwha Life entered the fintech and insurtech domains earlier than the peers to secure new sources of growth. We are determined to continue on our journey for digital innovation, and we ask for your interest and support. This is the end of the earnings report for the third quarter 2020. Thank you.

[Foreign Language] [Operator Instructions] [Foreign Language] The first question will be provided by Jin-Sang Kim from Hyundai Motors Company Securities.

[Interpreted] I am Kim Jin-Sang from the Hyundai Motor Company Securities. I have 2 questions. The first question is related to loss ratio. According to industry sources, the monthly loss ratio trend from August to October was not that bad. And of course, we still have some impact from the COVID-19 pandemic. But considering this trend, the loss ratio trend for the fourth quarter may be similar, and it's expected to be better than what we had last year. So do you think this is a reasonable expectation for the loss ratio in the fourth quarter? And if you can, can you provide us with some projection on the loss ratio trend for next year? And how much do you think there will be a gap between the expected loss ratio for next year and the sustainable loss ratio trend? The second question is related to QIS 3.0. If there's any information you can share with us regarding this QIS 3.0, please share with us.

[Interpreted] I am [ Yoo Won-Gook ] from the Claims Management. Let me answer your first question. When we take a look at the monthly breakdown of the loss ratio in the third quarter, it was 83.3% in July, 75.4% in August and 78.1% in September. Of course, in July, due to the temporary surge in highly priced death benefits, there was the worsening of the loss ratio temporarily, but you can see that the loss ratio became stabilized once again in August and September. And in October, the loss ratio was even lower to 72.7%. So making projections for the remainder of the year, I believe that the loss ratio trend for November is going to be similar to the previous month. So we will be able to reach the target by the end of this year. Moving on to our projection for 2021 in terms of cost ratio. We believe that it is going to be a low 80%. Thanks to the growth in the sales of other protection products, we're witnessing the increase in risk premiums. However, we expect that death penalty, death benefits and other claims payouts will continue to increase next year as the corona pandemic is over and there's an increased use of medical services. Therefore, when you compare these 2, I believe that there will be more accident claims payouts than the increase in the risk premium. So overall, we believe that the loss ratio will be slightly higher than this year in 2021. Speaking on the medium and long-term projection for the loss ratio trend, we are continuing to implement the strategies to maximize the profit of new policies and attracting high-quality customers while strengthening our assessment on unfair claims and maintaining and increasing the persistency ratios. So overall, we believe that we will be able to manage the loss ratio to be lower 80%.

[Interpreted] I'm [ Kim Byung-Wook ] from the risk management team. Let me address your question regarding K-ICS. As of December 2019, the K-ICS QIS 3.0 is underway, and we expect this process to be completed by the end of this year. Because it is now ongoing, I am not able to give you some specific numbers, and I'd like to ask for your understanding. But under this new regime to be introduced, there are several areas that we're improving at the Hanwha Life Insurance, and I want to share them with you. First of all, there is this benefit of increasing the capital as we have new business coming in, which is evaluated mark-to-market. As was mentioned in the presentation, we have been implementing the strategies to increase the sales of protection products, which are highly profitable. As a result, when it comes to new business, we have about KRW 1.4 trillion of increase in the capital base. We will continue to carry out this strategy by utilizing our strong sales capabilities so that we can continue to secure high-margin policies. Secondly, we have been working to reduce the required capital by increasing the asset duration and increasing the portion of interest-bearing assets in our portfolio. So compared to December of 2018 when there was QIS 2.0, when you look at the asset duration now, it has increased from 8.14 years to 9.34 years. And as a result, we were able to -- and we also were able to increase the amount of interest-bearing assets from KRW 77.9 trillion to more than KRW 88 trillion. So with this benefit of increase in interest-bearing assets, which amount to about KRW 1 trillion, we were able to reduce the interest rate risk quite significantly. So we will continue to implement the strategy of increasing the asset duration going forward so that we can continue to reduce the required capital. Secondly, I'd like to talk about the impact of interest rate changes, both domestically and globally. As of December 2019, the portion of overseas investment is almost 30%, which is the maximum limit allowed out of all the assets. The loan assets and domestic bonds are affected by changes in the domestic interest rates, while overseas securities are affected by overseas interest rate changes. So there is this impact on our capital adequacy. When you take a look at the interest rate changes domestically, there was a 43 basis point decline in the 5-year bond rate in 2018 -- compared to 2018 in Korea, while when you look at the overseas securities, there was a decline of 140 -- 134 basis points of bond rate globally. As a result, we had this impact of capital increase by KRW 2 trillion. And currently, overseas securities are not as attractive as domestic bonds because of these interest rate situations. So we're now in the process of replacing overseas bonds with domestic funds, and I believe that for some time, we will continue to maintain this strategy to reduce the portion of overseas bonds. So thanks to these various measures in order to improve our capital adequacy by the end of 2019 as well as current -- during the current QIS 3.0, we believe that our capital adequacy will exceed what is minimally required by the regulations. And in addition, we're going to pursue various options, including a co-insurance and increasing the portion of policy loans and improve the underwriting efficiency. So overall, by continuing to implement these strategies by 2023, we will continue to strengthen our capital adequacy and soundness so that we will be prepared for new regulations. Thank you.

[Foreign Language] The following question will be presented by Byung Gun Lee from DB Financial Investment.

[Interpreted] I'm Byung Gun from DB Finance and Investments. I'd like to first thank you for the good earnings results despite very challenging business situation. I'd like to ask you 2 questions. The first question is about crediting rate trend. On Page 11, you gave us very detailed information. Given the fact that the current rate for 10 to 20 years is 1.6% to 1.7%, if we make the assumption that these will be maintained, what will be the movement of the crediting rate going forward for the next 2 to 3 years? If you could break -- give me the annual breakdown, it will be very nice. Of course, we have been making a lot of efforts, so the crediting rate has been showing the declining trend. So compared to the end of this year, all the way to next year and the year after, how low can it go? And if you can break it into fixed portion and floating portion, it will be really nice. The second question is regarding the LAT surplus, and I asked the same question to your competitor. Given the assumption that the rates for 20-year papers would be maintained, we expect that there will be regulatory strengthening, not only this year but also next year. So this year, it was more about interest rates and discount rates. And next year, there will be more strengthening regarding the discount rate additionally. So if you compare the LAT surplus amount for the end of 2019 versus June of this year and the end of this year, how much decline do you think there will be for the LAT surplus? In other words, what will be the movement of your LAT buffer?

[Interpreted] [ Kim Byung-Wook ] from the risk management team. Let me answer your question on the crediting rate. When we take a look at the fixed portion on a yearly basis, there has been a continuous decline by about 10 basis points each year. I believe that this trend will continue for the next 2 to 3 years. What's important is to look at the floating portion. Currently, in our policy reserves, the portion of floating reserves has been increasing. And of course, the crediting rate on the floating portion is dependent on our offer -- our disclosed rates as well as the market rate situations. And recently, the disclosed rates and low interest rate environment in the market are causing the decline in the crediting rate for the floating portion. So even though there are some fluctuations and some volatility expected, I believe that for the next 2 to 3 years, the crediting rate on the floating side is likely to be declining by -- minimum by around 10 basis points each year. There are several factors that will support this hypothesis. And last year, it declined by 6 basis points.

[Interpreted] I'm [ Tong Yu Wah ] from the IFRS task force team. As you may all know, there has been continued strengthening in regulations. When we take a look at the details of these regulatory strengthening, from 2019 to 2020, it was mainly related to liquidity premiums, and it's been changed to the market base. And in 2021, we expect the regulatory tightening related to the confidence level. So specifically, between -- from 2019 to 2020, the liquidity premium is expected to go down by about 37 basis points. What does it mean for us? If the discount rates are parallel moved, then the discount rate change would be about 10 basis. However, that's not what's happening. About 75% of the discount rate portion will be maintained, and this means that there will be about 30 basis point decline in the discount rate for our company this year. And next year, it's going to be about 30 or medium, a 30 basis point decline for next year. So I explained to you the movement in the discount rates. When it comes to the movement of the LAT surplus, it's affected by the increase in new business and decline in the in-force business and also the negative impact of regulatory tightening. As a result, I'll give you some numbers. In December 2019, the LAT surplus for Hanwha Life was KRW 4.3 trillion, and in June this year, it was KRW 5.7 trillion. And because of these changes expected for the remainder of this year, we believe that the LAT surplus amount will be higher KRW 2 trillion by the end of this year, and it's going to be over KRW 1 trillion by December next year.

[Foreign Language] The next question will be provided by Tae Joon Jeong from Yuanta Securities.

[Interpreted] I am Tae Joon Jeong from Yuanta Securities. I'd like to ask you 2 questions. The first question is related to Life MD channel. How is it different from the traditional FPs using online services for sales activities? And do you expect some cannibalization effect by launching this new Life MD channel? And what is your expectation in terms of the positive benefit of Life MD on your expense ratio? The second question is related to your dividend policy. I understand that your capital adequacy has been improving continuously. So how much dividend can we expect for this year? And what is your medium to long-term dividend policy direction?

[Interpreted] I'm [ Andrew Chao ] from the new sales channel team. Thank you for your question. When you look at Life MD, this allows part-time financial planners to do sales activities whenever they want. So it is different from the way the existing FP channel or financial planners are working full-time by going to their office and then work full-time during the week days. Therefore, we see substantial difference between Life MD and the existing FPs using online services, and we do not see any major cannibalization effect. And we are considering and developing various plans to maximize the synergy between the Life MD and existing FP channel. Moving on to your question related to the impact of the -- impact on the expense ratio. Because this channel was recently launched, there was not major investments so far. Of course, we developed some digital infrastructure to support the Life MD application, but this is also being utilized by the existing FP channel. And going forward, if we have some specific investment numbers, we would like to share with you in the future.

[Interpreted] I am Han Young-Man from the financial management team. Let me answer your question regarding our dividend policy. We have been considering various factors, including the regulatory changes, issuance of hybrid bonds, maximizing shareholder value and what the competitors are doing in terms of dividend. So we have been maintaining a certain level of dividend payout for our investors and shareholders. In the medium to long term, we don't have any specific policy to announce to you right now. But in consideration of the very challenging business environment, including ultra-low interest rate trend, we are going to consider various external and internal factors and decide on the dividend policy later.

[Foreign Language] The next question will be provided by Myung Wook Kim from JPMorgan.

[Interpreted] I am Kim Myung Wook from JPMorgan. I would like to ask you 2 questions. The first question is related to the new business margin that is described on Page 3 in your presentation deck. I can see that new business margin has been very good. And I wonder what has been the main driver behind this improvement in new business margin. What does it have to do with your kinds of coverages and product designs? Because when we look at this new business margin, this is very high even compared to other Asian insurance companies overall in the region. So is it about specific riders you've designed? Or what was the main reason behind this improvement? The second question is related to the GA channel commission structure changes. We're witnessing changes in the overall commission structure. What do you think is the impact of these changes in 2021 on the industry as a whole and on Hanwha Life Insurance?

[Interpreted] I'm [ Tong Yu Wah ] from the IFRS task force team. I'd like to address your question regarding the improved product margin. Yes, there has been an improvement in the profitability of our products, and there are several reasons why. First of all, I would say that the portion of protection in the overall product portfolio has increased, and in particular, the portion of other protection products that have higher margin has been increasing as well. So that's the first reason. The second reason would be that there were lowering of expected rates twice this year in 2020, so that had some impact. And the third reason would be related to our pricing policy. We understand that other protection products such as convenient -- such as simplified cancer products and other cancer products carry higher risks. Therefore, under the new regulatory regime, there should be strict management over these products through [ RA and RM ]. And that is why we have set the target pricing guideline, which is about -- which is about 100% of the APE. And overall, these reasons have been the driver behind the improvement in the new business margin.

[Interpreted] I am [ Ejing Sooh from the PA ] channel sales. Let me answer your question regarding the commission structure. When we look at the tight agent channel, our FP channel, the commission structures are divided into 2 categories. The first one is proportional to their new sales activity, and the second part is the organizational commission. And these proportional commissions take up about 80% of the total commission amount. And we are focusing on increasing the medium to long persistency ratio so that we can increase the amount of recurring premiums. Going forward, in 2021, we will continue to optimize our commission structure in accordance with the guidelines by the Financial Services Commission, which is about limiting the commission rate to be 1,200%. Therefore, we will continue to simplify the commission structure so that it can be very intuitive and easy to understand for the FPs. And we will give more incentives to our highly efficient FPs, and we will continue to lower the portion of fixed costs and increase the portion of performance-linked incentives and commissions. And we will continue to encourage the performance of team leaders -- sales team leaders so that individual teams can become larger and more efficient. And all in all, these measures will help us improve the FP channel efficiency and its productivity.

[Foreign Language] The next question will be provided by [ Hung Jun Lee ] from Hana Financial Investment.

[Interpreted] I am [ Hung Jun Lee ] from Hana Financial Investment. I'd like to first thank you for your active IR activities. In your presentation for the third quarter of this year, what was quite impressive was the ESG management result. So I'd like to ask you a couple of questions regarding this. When we take a look at the investment in fintech business, of course, there can be multiple purposes, but it is my understanding that you're actively investing in fintech for the benefit of society. So is that a correct understanding? Or to be more specific, how can your investment in fintech be connected to increasing social value of your business? What is the scope and criteria of investing in fintech start-ups? And what is your actual target? Because when you look at some other company in the industry, they've announced a plan to acquire an overseas AI-related alternative investment company. So there is some specific objective and target, but I wonder how your fintech investment is related to increasing social value and what is your specific objective.

[Interpreted] I am [ Ejun Sookay from AI Plus team ]. I believe you're asking our activities regarding DREAMPLUS, which is oriented to fintech investment. The main objective of DREAMPLUS is to promote open innovation for the fintech industry. Therefore, we have been contributing to creating a start-up fintech start-up ecosystem in collaboration with government authorities, foundations and investors and universities and many other participants in the ecosystem. We have been promoting the development of health care capabilities and insurtech solutions. All in all, we have so far signed 55 MOUs for collaboration in this regard. And I believe that we have been also engaged in various joint cooperation projects for the benefit of the health care industry in general. And we have been pushing forward with the cooperation with Zero One, so Hyundai Motors Zero One and Hanwha Life DREAMPLUS, since June this year.

[Foreign Language] The next question will be provided by Sinyoung Park from Goldman Sachs.

[Interpreted] I'm Park Sinyoung from Goldman Sachs. I'd like to ask you 2 questions. The first question is related to the expense margin trend. It has gone down slightly, which is a different direction than the peers in the industry. So I'd like to understand if there were any particular reasons behind this change in the expense margin. And what is your projection for the expense margin going forward? The second question is related to asset management. Recently, interest rates have gone up slightly, but still, the overall market situation is quite unfavorable. So what is your portfolio investment strategy going forward? And if you could provide us with some breakdown information by asset type, it will be highly appreciated. So are you going to increase a portion of asset or investment interest by other managers? Or are you going to proceed with some kind of M&A or other plans for alternative investment managers? Or what are the specific plans, if you have any?

[Interpreted] I'm Jung Yong-Ho from the corporate planning and administration team. Let me address your first question. Yes, on the surface, you may see that the expense margin has declined -- has been worsened on a year-over-year basis. And I would say the main reason was the increase in protection-type new sales. As there were more sales, there were direct sales and distribution costs that were linked to these increased sales. So temporarily, you may think that the expense margin has worsened. However, this is related to the structural recognition of the costs and expenses in our accounting. But considering the increase in loading expenses coming from these new protection policies and the potential positive impact on our overall earnings, I believe that the expense margin will continue to improve going forward.

[Interpreted] I am [ Kim Kee-Dong ] from the investment business team. You asked a question about our overall portfolio strategy in conjunction with interest rate movement, and you asked for the breakdown by asset type. I'd like to first mention that we try to minimize the influence of interest rate projection on our overall asset management strategy. In making our investment operation there, we have the dual-target strategy. First of all, as was mentioned by the other executives, we're trying to minimize the interest rate sensitivity of our assets and liabilities. So it's not necessarily following the RBC guideline, but rather more strict guidelines, including K-ICS. Currently, the asset duration is much shorter than the liability duration, so of course, our first objective is to increase the asset duration. And in order to expand the asset duration, we will continue to replace short-dated bonds with long-dated funds, and we will utilize the derivative products such as bond forward to increase the asset duration. As I mentioned, when you look at the mark-to-market valuation, when the interest rates go down, then the discount rates on mark-to-market liabilities will move as well. So that is why we're trying to minimize the impact of interest rate movement. And overall, we will continue to reduce the interest rate sensitivity of our assets and liabilities. So decreasing the sensitivity to interest rates is our first target. And as for the dual-target strategy, the second target is to drive up the investment yield. Our target is to make sure that assets or investment yield is higher than the mark-to-market liability cost, which is the discount rate. So overall, in consideration of the capital costs, we will continue to invest in stable alternative investment opportunities and increase the portion of policy loans and retail loans. So all in all, we are going to continue to implement a barbell strategy by, on one hand, increasing the portion of long-dated government bonds and, on the other hand, continue to invest in stable alternative investment products. And secondly, regarding your question on whether we have a plan to increase the portion of external management, we don't have any specific plan to increase that. But overall, for the investment in alternative assets, we want to increase the efficiency in utilizing external asset managers. So of course, it's now in the beginning, but we are devising plans to maximize the utilization of external managers for alternative assets. Thank you.

[Foreign Language] The next question will be provided by Jun-Sup Jung from NH Investment Securities.

[Interpreted] I'm Jung Jun-Sup from NH Investment Securities. I have one question. Recently, Hanwha General Insurance, which is your -- which is under your statements, they have put the Carrot 100% under their assets. And of course, Hanwha General Insurance said that it was a decision to improve their RBC ratio, but some media reports said that it would possibly be actual sales. So what was the reason behind this decision? And what is your position at Hanwha Life? Is it, in some way, in line with your digitalization journey?

[Interpreted] I am Yong-Ho Jung from the corporate planning and administration team. Let me make one thing clear that this deal has not been closed officially yet. So currently, Carrot is the subsidiary of Hanwha General Insurance, which is under Hanwha Life in terms of consolidation. So I would say that Carrot Insurance is our grandchild company. But when it comes to the equity management, it is fully under the Hanwha General Insurance. So I cannot -- I'm not in a position to explain to you the details about the background behind this particular deal. But as you can imagine, in starting a new business, it takes a large amount of initial investment. And as the business grows, there will be additional demand for capital increase. Currently, given the management situations of Hanwha General Insurance, they may have decided that it may not be easy to supply additional capital for this particular subsidiary, and that may be the reason why they've decided to go on with the deal. And concerning this deal of selling off the Carrot Insurance by Hanwha General Insurance, there were some media speculation that this may potentially lead to the sale of Hanwha General Insurance as well. However, as of now, we don't have any plan to sell off this Hanwha General Insurance.

[Foreign Language] The next question will be provided by HeeYeon Lim from Shinhan Financial Investment.

[Interpreted] I am Lim HeeYeon from Shinhan Financial Investment. I would like to ask you 3 questions. The first question is related to the Life MD. I want to understand the differences in commission structure between Life MD and the existing FPs. What is your overall target for the number of Life MDs that you would like to recruit? And what is your target for the new business APE coming from Life MD? What is your immediate target and the medium to long-term target with respect to the growth and the size of Life MD going forward? The second question is related to corporate tax payment. The corporate tax rate for Hanwha Life, it seems to be 31.7%, which is quite high. So I wonder if there was any one-off issues related to this. The third question is regarding the ongoing litigation on single payment retirement payout. What is your reserve plan? And are there any responses that you are planning in response to these cases?

[Interpreted] I am [ Andrew Chao ] from the new sales channel team. Let me answer your first question. As was mentioned in the presentation, Life MD, this is a new digital sales channel where every sales activities, including the recruitment of Life MDs, registration of Life MDs, training and sales activities, all the way to policy contract signing, will be done in a digital manner. And our target Life MDs would be anyone in the age groups of 20 to 40 years old. It is aimed at pitching the idea that anyone can sell insurance by registering with Life MD. Therefore, the commission structure has been designed to be very simple and easy to understand. So it's something similar to having some multiples for monthly premium payment. And so that's, of course, for the long-term premium payment type. And as for single premium payment, we will make sure that they will sign up for the return of liability guarantee bond so that there will be no risk involved. Basically, the Life MD channel involves no branches and no managers and no set organizations. Everything starting from FP training all the way to sales activities will be done using this Life MD application. So our immediate objective is to optimize the processes that are running on this application. We don't have any particular recruitment size target or the contribution to our overall APE at this point because we are focusing on optimizing the application for these Life MDs. And of course, in the medium to long term, we want to recruit a very large number of life MDS who have multiple jobs so that they can contribute to our revenue and our business growth.

I'm Han Young-Man from the financial management team. I want to answer the second question on the corporate tax payment costs. Recently, we received a tax audit from the sole regional tax office, which is actually a regular tax audit. And the increase in the corporate tax payment cost was the reflection of the result of the tax audit. Thank you.

I'm [ Yoon Jong-Kook ] from the Corporate Planning and Administration team. Let me address your third question regarding these pending litigations. This year, the first Korean life insurance company lost the case in the first round. However, there was another life insurance company who won this case in July. This means that the outcome of the litigation is very much dependent on the designs and the specific terms and conditions of policy contracts. So it is a little too early to say anything about the potential outcome of the litigation pending at this point. So there are several litigations pending involving Hanwha Life Insurance, and we think that it will be the first trial in the first quarter of next year. However, nothing has been confirmed yet. And the amount of -- the actual amount of the litigation may also depend on the court ruling, and it may vary significantly. So we have to wait and see how this will unfold. Thank you.

[Interpreted] Now we'd like to end the earnings conference for Hanwha Life Insurance in third quarter of 2020. Thank you very much for your participation. If you have further inquiries, please contact the IR team. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]