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 annual earnings results by Hanwha Life Insurance. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2020 annual earnings results by Hanwha Life Insurance.

[Interpreted] Good afternoon. I am Choi Sang-Wook from IR at Hanwha Life Insurance. We are currently providing consecutive interpretation in Korean and English for the 2020 full year earnings and EV presentation. You can find the presentation material on our IR website. We shall said -- begin with a presentation by our CFO, Pyo Jeong Hong; and then the Q&A. Let me invite our CFO.

[Interpreted] Hi. I'm Pyo Jeong Hon, the CFO. Please note that today's presentation material is based on K-IFRS standards prepared for the purpose of timely provision of information for the benefit of investors' convenience and is hence subject to change after the auditors' review. Also, Hanwha Life's 2020 EV and 2021 performance outlooks are based on reliable information and forward-looking assumptions. With that said, let's begin the earnings presentation. Page 1 is on the summary of our key financials. With the spread of COVID-19 pandemic, which drove the economic slowdown and financial market volatility, 2020 was a year of unfavorable business backdrop for domestic companies, including Hanwha Life. Notwithstanding this, our premium income and general protection APE posted a growth of 5.4% and 6.6%, respectively, with RBC ratio improving 3.4 percentage points to 238.7%. Net profit was up 71.8% on year to KRW 196.9 billion, while EV increased 5.3% on portfolio improvements. Moving on to Page 2, on premium income. 2020 full year premium income was up 5.4% on year, driven by higher retirement pension sales. As a result of our underwriting strategy centering around new business value in the face of new regime introductions, protection premium was up 3.3% on year, with premium income for general protection lines reporting 20.4% year-over-year growth. Page 3, on new business APE. APE was up 0.7% year-on-year. Despite challenging operational environment, general protection APE was up 6.6% on year, driven by strong product sales [Audio Gap] including our special cancer insurance and insurance for dementia for the elderly. Page 4, on APE by channel. For 2020, FP channel captured 54% of total APE, while GA accounted for 14% and bancassurance 29%. APE for protection type from the FP and GA channels continued their uptrend, securing 92% and 84% of new sales, respectively. We will continue to grow our protection-type sales to maximize new business value going forward. On Page 5 is sales efficiency. 13th month and 25th month persistency ratio for 2020 improved and reported (sic) [ recorded ] 83.2% and 60.2%. 13th month retention ratio came in at 50%, sustaining industry's top levels, while number of FPs were 19,832, biggest in terms of size since 2016. Next, on Page 6, is net income. Net income was up 71.8% on year to KRW 196.9 billion. This is mainly driven by rise in mortality gain on the back of higher protection sales and improved interest gain from less pressure on the variable reserves with the rise in the stock market indices. Please refer to the presentation deck for movement analysis with respect to each of the margin categories. Page 7 is on core insurance margin. 2020 loss ratio improved by 1.9 percentage points on year to 79.6%. Mortality margin reported KRW 478.1 billion on the back of 2.4% growth in risk premiums. Expense ratio was flat year-on-year at 14.9%, while expense margin was KRW 317 billion on increase in actual costs following increases in new sales. Page 8 is on investments. Investment portfolio of the company is largely comprised of interest-bearing assets, including 49% domestic bond, 21% overseas securities and 23% loan assets. For 2020, on the back of gains from bond sales while rebalancing from short- to longer-maturity bonds, which was done to increase asset duration, investment yields recorded 3.47%. In order to respond to changes in the regulatory regime and changing macro, environmental, domestic and global, we will continue to increase our asset duration. Page 9, bond portfolio. Bond duration for 2020 was 12.18 years, following the increase in the portion of domestic and overseas long-dated bonds to 92%. The company currently manages high-quality and stable fixed income portfolio, of which 96% is rated above AAA for domestic bonds and 96% rated above A for overseas bonds. Next is on the loan portfolio. The company has a well-balanced loan portfolio, of which 40% is alternative investment. 29% is policy loans, and 31% retail. Despite concerns over economic slowdown triggered by the COVID pandemic, we were able to well manage our loan quality with delinquency rate at 0.21% and NPL ratio of 0.08%. Page 11 is on our policy reserves and crediting rate. On the back of structural runoff from legacy policies, reserve liabilities for fixed rates above 6% declined to 25%, while floating-rate reserves continued at 51% of the total mix. As a result, the company's crediting rate fell 10 basis points on year to 4.41%, sustaining the trend of improvement. Page 12 is RBC and duration. RBC increased 3.4 percentage points year-on-year to 238.7%, driven by active ALM management, which led to expanded asset duration. Duration gap improved 1.41 years year-on-year, coming in at 0.02 years. Page 13 is on EV. We use P/EV method as according to the economic standards. 2020 EV before dividends increased 5.3% from 2019 revaluation. Adjusted net worth fell slightly on lower value in gains on AFS, available-for-sale, securities from recent rate hikes, but value in force showed sizable improvement of KRW 522 billion year-on-year on the back of improvement in product portfolio driven by higher sales of general protection lines since 2019. If current level of interest rate and regulations persists, we expect 2021 EV to show improvements above the level we've seen this year at 5.3%. For details on the EV movement, please refer to the presentation deck. Next is on the value of new business. Driven by enhancement of protection-focused portfolio, VONB, value of new business, for 2020 was up 2.2% on year, reporting KRW 727 billion. Share of protection value of new business against the total expanded to 92%, driving the VONB margin up 0.5 percentage points year-on-year, reporting 39.5%. We have reduced assumed rates preemptively on April and July of 2020 and plan to maximize profitability of our insurance portfolio by growing sales of general protection line in 2021 as well. As such, we expect value of new business margin can expand to around 44% in 2021. Page 15 is on sensitivity test and major assumptions. 10 percentage points fall in RBC has sensitivity of KRW 200 billion for EV and KRW 2 billion effect on value of new businesses. 50 basis points rise in the interest rate has sensitivity of KRW 181 billion for EV and KRW 84 billion on the value of new business. For the rest, please refer to the presentation material. And in terms of the key assumptions, they are similar to last year. First, for economic assumptions, we applied same figure as last year, i.e., discount rate of 7.5% and investment yield of 3%. 25.2% was used for the tax rate, which is 80 basis points lower than last year. Second, under the actuarial assumptions, we took 2020 experience rate for the expense ratio while using last 5 years experience data on lapse and claims ratio. Moving on to Page 16. In order to respond proactively to fast-changing insurance industry paradigm, we are the first major domestic life insurer to split the company's tied agents channel to a specialized sales subsidiary as part of our operational advancement initiatives. The new company share will be 100% owned by Hanwha Life, the mother company, for the purpose of securing control and for effective setup of operational framework. This specialized insurance sales company will be launched with a total capital stock of KRW 650 billion and 1,400 employees as of the split date of April 1. We expect Hanwha Life's mega-size sales organization, which is taking its first step into the GA market which has great potential for growth, would form the basis for enhanced consolidated earnings and corporate value going forward for Hanwha Life. Next is on ESG. On January 2021, 6 financial affiliates under the Hanwha Group, including Hanwha Life, have pledged to adopt a coal phase-out stance as part of our sustainable growth efforts which accompany environmental and social responsibilities. Hanwha Life Insurance will actively participate in Hanwha Group's pursuit of sustainable management by way of creating social and economic values. Also, in order to strengthen ESG management that meets the global standards, we will continue to expand investments into renewable energies and other areas of responsible investment and build out ecofriendly governance system across all of the company's work sites. Lastly, on financial year 2021 outlook. We expect 2021 to present difficult business backdrop with aging population, deepening competition, low interest rates and implementation of new regulations. We will strive for qualitative growth underpinned by core insurance profit driven by corporate-wide margin-centric strategies. Also, through stable risk and capital adequacy management, we will actively respond to a more stringent upcoming regulatory environment. Based on such efforts, for 2021, we will target value of new business margin of 44%, general protection APE growth of 13%, 13th month persistency ratio of 85%, loss ratio of 80%, asset duration of over 10 years and RBC ratio of no less than 220%. That ends Hanwha Life Insurance's financial year '20 full year performance and EV presentations. Thank you for your attention.

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

[Interpreted] I am Jung Jun-Sup from NH Investment Security. I would like to ask you 2 questions. First has to do with your variable guarantee reserve. I understand that the level of the reserving for Q4 was KRW 187 billion. On an year-over-year basis, the level of burden did decline, as you have previously mentioned, but compared to your peers and competitors, it still seems quite elevated. So considering the fact that although the interest rate backdrop was not very favorable, still there was the share prices going up in the stock market. And some other factors actually played positively. So considering all of those factors, it seems that your reserving ratio, as compared to your peers, is still quite high. So could you give us a breakdown and give us more color if we were to compare this and carving out the interest rates impact as well as other factors? And also, I understand that your competitors are actually hedging for the interest rates element. Do you also have time to hedge for that interest rates this year? Second question relates to your liability adequacy test, LAT. What was the size based off of LAT testing as of end of 2020? And what is your projection for LAT for 2021?

[Interpreted] I am from the risk management team. I am Kim Byung Ho. I will respond to your question with regards to the Q4 variable guarantee reserves. So responding to that first question: There have been some adjustments to the scenario. Compared -- if you look at the whole year, at the end of the year, the -- had been compared to the previous year, the starting interest rate was down by 25 basis points. And with the prolonged low interest rate backdrop, if you look at the long-term average interest rate, it actually dipped by 10 basis points. And this has to do with the FSC's scenario, and that had an impact about KRW 280 billion. And also with the continuation of the road rate low -- or low interest rate environment, the long-term persistency ratio actually went up. So this is from an actuarial assumptions perspective. So in terms of the LAT, we have made the adjustment and have made addition of KRW 100 billion in reserving. So yes, there have been a lessening of the reserve burden coming from the return that we're getting from the share prices. And there was about KRW 200 billion downward impact, but all in all, due to the previous factors that I explained, there was a plus impact of KRW 180 billion. Now responding to your second part of the question, on hedging for the variable reserves. If you look at the situation last year, the overall hedging environment was very negative. What -- the instruments that we use for hedging is IRS, the interest rate swap, [indiscernible]. If you look at the interest rate swap rate, it's really punched significantly. So we actually missed the opportunity to take a hedging position. This year, there has been a -- situation has been the opposite. So there has been a surge in 80 basis points in the interest rate -- IRS, swap rate. And so for this year, we are planning to hedge about 30% of our position against the total. And of course, we will continuously monitor the situation and by looking at the share prices and the interest rates environment. If we feel that it is possible and helpful, then we may be able to expand on that hedging position. And just to clarify one point: Even as of today, we do have some hedging positions in place for the reserves.

[Interpreted] I am from the IFRS task force team, the team leader, responding to your question about the assessment of the LAT surplus. If you look at LAT surplus, as of end of 2020, it was KRW 3.1 trillion, requiring no additional reserving. For next year, if we were to make this projection, the criteria that we use is for financial soundness, financial soundness reserve. And with regards to the adoption of this guideline, as of the current date, based on the rules and guidelines, we do not see any factors that will require us to make additional reserving.

[Interpreted] Thank you. I hope that fully answered your question.

[Foreign Language]

[Foreign Language] The next question will be provided by [indiscernible] from Hanwha Financial Investment.

[Interpreted] I am Yong Hoon Sung from Hanwha Financial Investment. I would like to ask you 2 questions, 1 on EV and 1 on your new business. Since you're doing the P/EV calculation, I know that this will not be on an absolute basis, but could you provide some explanation as to why we've seen declines in your ANW? And also, your VIF is still in the negative realm. Why is that? I understand there could be some interest rate impacts, but I think it's mostly due to the actuarial assumption-related reason. So -- and also, if you look at the new business margin, because you've cut your assumed rates twice over the year, people were expecting a little higher margin for that. So could you explain why we're not seeing [ as higher as our ] expectations? And also you've shared that your target is 44% for 2021. I mean, is that a feasible target? And what are your plans to actually achieve that? Second question is on your new business. You've communicated on numerous occasions the big picture, the vision. So taking that aside, I understand that you're continuously expanding your fintech investment. So what will be the amount of investments that would actually be used and that would actually be deducted from that expense gain category? And what do you think is going -- when can we see the impacts of this fintech investment actually materializing? What is actually the size of that impacts? And if you could share with us specific numbers, that would be helpful.

[Interpreted] Yes. I am the team leader from the IFRS team. Responding to, first, why there has been a -- less of an increase in adjusted net worth. When we are running the EV calculation, there is the ANW adjustment which is driven by the unwind as well as the changes in the [indiscernible] involved for EV calculation. So number one, there was an impact of one-off expenses or one-off expense factors for 2020. There was decline in the valuation gain for AFSes, and that explains one of the reasons as to why we've seen less of an increase in adjusted net worth. Responding to the second part of that question, on the value of in force. As you know, with respect to our initial months new policy sales for the protection type, that trend is continually showing an uptrend. So we've seen KRW 700 billion of inflow. And from a short-term perspective, the persistency ratio is showing an uptrend as well, but when we were applying the lapse ratio, and this is part of the actuarial assumption, we've actually lowered that -- we have to lower that criteria. So that had an impact of limiting the increased level or the growth rate of the VIF. So you would be able to take a look at the presentation material, but as we go forward and as it materializes, the -- this factor, because we've applied the lapse ratio assumption, and -- when it actually materializes, the future may look more positive. And then moving on to the value of new business, whether we will be able to achieve that 44% target. Basically the assumptions that we've applied is based on what we observed over this year, over 2020. And so what -- we are looking at improvements in our product portfolio [ would affect us in ] improving on the margin for our protection line. So basically we are taking what's included in our business plans, but having said that, we have that persistency ratio. As well as, if we apply the assumed rate cuts, we think that we could amply and feasibly achieve that target. Thank you.

[Interpreted] I am Yoon Jong Guk from Corporate Planning and Management. I will respond to your question about the new business. You are right. We are really making inroads into many different types of new businesses. And as was covered by the press, we are currently developing digital platforms, and you've probably heard of Life MD as well. So we have already launched this Life MD platform, and at this point in time, we are designing and planning and implementing other platforms as well, platform for gig economy and platform for lifestyles. So we are making an investment, expenditures in many different forms. We also -- we have labor costs that are being paid out for these special experts and professionals, and also there are auxiliary expenses that were being captured as short-term costs. For investment that's made into developing the platform and launching the Life MD platform, they currently go under the asset category, so they were not -- they are not going to be deducted or they're not going to be reflected immediately from a short-term perspective from our expense gains category and accounts. Or once they start to generate revenues, then it will be from that point in time that the expense will be captured. Now for these new businesses, there are many different types of business models that the company is currently looking into. And when we are able to share with you more details, we will definitely do that.

[Interpreted] Thank you. We hope that answered your question.

[Foreign Language]

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

[Interpreted] I'm Jeong Tae Joon from Yuanta Securities. I would like to ask you 2 questions. First, can you update us on your shareholder return policy? Second question relates to your new business. I understand that you recently was given a warning from the FSS, the supervisory authority, and that is dragging you down on pursuit of your MyData business, whilst your competitors are making inroads into that asset. How are you planning to respond to this issue?

[Interpreted] I am Han Young-Man from the finance team. I will respond to your shareholder return policy related questions. Well, regarding shareholder return policy, I believe that, that will be comprised of share buyback, with respect to which at this point we have made no decision with regards to treasury share buyback. And the second element will be our dividend payout policy. After we listed the company in light of the new solvency regime as well as the issuance of the hybrid bonds and in order to further enhance the shareholder value, we have maintained a certain level of dividend payout stance. Considering the fact that we are in an ultra-low rate environment and the operational backdrop for an insurance company is not that favorable, we would exert our utmost efforts to make sure that we can pay out at a level that is admissible under the current situation. And in terms of the dividend for 2020, soon there will be a regular BOD meeting that will be convened, and once a resolution is adopted, we will make that disclosure.

[Interpreted] Yes. I am [ Chong Kyung-Wook ] from the public affairs node. I will respond to your question about the MyData business. So last year, the company was looking at pushing for the MyData business, but in light of the warning notice that we got from the FSS as well as in light of the criteria for review and assessments and the efficacy of this business, we decided that we will not take part in the first leg of the approval process. So from the life insurance industry, Shinhan, Metlife and Kyogo -- Kyobo have participated. And we will participate in the second leg of the approval process. The company, Hanwha Life, will wait and see what the business effect is for other financial institutions. And once the restrictions on our company, as a majority shareholder, eligibility gets eased, we will very actively look into a possibility of entering into that review process if it is possible.

[Foreign Language]

[Foreign Language]

[Foreign Language] The following question will be presented by Kang Seung-Gun from KB Securities.

[Interpreted] So I'm from KB Securities. I would like to ask you 2 questions. The first is the impacts to your -- the specialized subsidiary on sales of the insurance products that you are moving to establish. What impacts will this, will it have on your consolidated profit? Basically if you look at 2020, on your new business sales based off of that, what impact would the new subsidiary have? And because it's splitting of the channels and it's an asset split, if you actually combine it together, the impact is just going to be more or less the same, but if you could also share with us what stand-alone basis impacts you expect to have from this subsidiary. And also we are still seeing a widening of spread, gap between the running yields as well as crediting rate. That is quite natural considering the interest rate environment, but I would like to understand what the company's interest rate assumption is for the future. And when do you think is going to be the timing for you to see the stop of worsening spread between running yield and crediting rates?

[Interpreted] Yes. I'm the team leader of corporate planning and management. I will respond to the question about our subsidiary. So to this physical split that we're envisioning: The subsidiary, we believe, is going to bring about a -- quite a significant impact. And it's driven by 2 factors. One is by adding and -- for this subsidiary selling nonlife products, P&C products. This will have a boost to our consolidated profit. And also, by growing the size of the tied agents [ by Q3 ], we are -- we will be able to increase the sales through the specialized sales subsidiary. So driven by these 2 factors, we are projecting a quite significant performance, positive impacts on our consolidated numbers. And as of -- as you have currently mentioned, because this is a physical split of the assets, basically if we take out the 2 prior factors that I have explained, basically the amount of revenue and top line profits that's going to be attributable to the subsidiary is going to be deducted from the mother company. So from a consolidated basis, there will not be a big of a difference. And just to elaborate on that. Let's say, pre split, the -- at mother company there was about KRW 300 billion in sales. Then after the split and if the subsidiary sells 0 nonlife products, but if they continue on selling the tied products for the life insurance products, then KRW 50 billion will be booked under that subsidiary, while those KRW 250 billion will remain at the mother company. But as I explained before, we are looking forward to selling more of normalized P&C products. And we will also further expand the FP organization, the tied organization, so for the -- even for the sales of the life insurance products, we are not projecting a flat sales but an uptrend. So we believe that, driven by these 2 factors, from the P&L perspective as well, we can look forward to growth. So just to give you more specific numbers: And based off of the business plan that we have as of today, well, basically by adding more nonlife products and selling those through the subsidiary, we're looking to, from a short-term perspective, generate about KRW 20 billion in additional profit, but from a long-term perspective we believe that will grow to KRW 50 billion to KRW 60 billion. And also, from increasing the size of the life insurance product sales through the bigger FP organization, from a long term, we are looking to add about KRW 50 billion to KRW 60 billion in addition as well.

[Interpreted] Responding to that second question. I'm from risk management. I'm Kim Byung Ho. You've mentioned the spread between the running yield and the crediting rate is actually worsening. When do we see foresee these trends to stop? If you look at crediting rate, it's actually going down by 10 to 15 basis points per year, on the running yield side about 20 basis points movement. So there has been an additional deterioration of the spread by about 10 basis points on an annual basis. So all of this. And what's going to happen in the future is going to base on what our assumptions are for the interest rates moving forward. And of course, the interest rates rising and falling and the speed of that may vary over a certain period, but we believe that the current deterioration of the spread between the two is going to continue for this year and next year as well. However, from 2022, we think that, that spread level is going to peak. And after that point in time, it will either stay flat or it will start to narrow. That is our very cautious prediction.

[Foreign Language]

[Foreign Language]

[Foreign Language] The following question will be presented by Do Ha Kim from Cape Investment & Securities.

[Interpreted] I'm from Cape Investment & Securities. If you could just answer my question quite simply. First question may relate to my misunderstanding of the structure. It seems like you were more impacted on your variable guarantee reserves. At the end of the year, the interest rate -- your reserve had shown quite a bit of swing due to the interest rate movement because you did not hedge at all your reserve, but -- and you said that, going forward into next year, you're going to start to take some hedging position, but if we look at the current interest rate backdrop, I think that from a short-term perspective the rate is going to slightly increase compared to the 2020 rate environment. So if that's the case and if you increase your hedging position, would that not offset the positive impact that you may be able to enjoy from not hedging? So maybe it's my misunderstanding, so could you clarify that point for me? And second, I have a great level of interest on your Life MD platform. I understand that it was launched either September, October of last year. Could you share with us the number of agents that you were able to recruit and what their performance indicators are?

[Interpreted] I'm the risk management team leader. What you have said is totally correct, and we are fully aware of that. We are therefore very mindful of how the hedging environment is going to evolve, meaning -- interest rates have gone up, and the share prices are at this point very -- at the highest level. So we will review fully all the factors that will impact the hedging environment and adjust the speed at which we take a hedging position.

[Interpreted] I am [ Han Jung Yung ] from the [ SFP ] platform team. I will respond to your question about Life MD. So Life MD is a digital platform based on which a -- part-time agents can start to engage in their business. Basically we opened the system back in October. And even during the COVID pandemic, we have seen about 300 to 400 agents per month taking the qualification test and enrolling as agents. So this Life MD platform is only at its infant stage. It still needs to go through some more of a development phase, and we are at this point in the process of making this whole development process more robust. So in terms of the performance that we gain out of this platform, we would wait and see for it to actually materialize. And we'll be able to share those information at a latter point in time.

[Foreign Language]

[Foreign Language]

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

[Interpreted] I have 5 questions. My first question, can you share with us what your maturity schedule looks like for the high-rated legacy liabilities, high-rated reserves of above 6%? I understand that you are reducing the exposure to such legacy liabilities to about 25%, which is positive, but it seems like the speed at which the maturity is coming due is quite slow. So for 2020, it was actually less than KRW 10 billion. So it would be helpful if you could share with us the maturity schedule. Second, also your new business value growth is quite slow despite the fact that the margin is improving and overall new business performance is positive. Why is that speed slow? Third question. Your -- what is your actual liability duration? Because based on RBC, your liability duration is around 7.2 years. So if you could tell us what the actual liability duration is, that would be helpful. And also, for this year, it seems like, in light of your asset duration as well as the interest rates environment where the interest is going up, you will probably need to increase your exposure to bond instruments, your fixed-income instruments. What is your target for that? And for Q4, there were quite a bit of gains from disposition; one-offs, that is. What were those? And fifth question is, yes, for 2020 you received A ratings for ESG management. For 2021, for you to maintain that A ratings, what are some of the additional investments you would need to put in? And also, it's always helpful for a company to be included in the ESG index by a reputable institution, so -- and it's not something that could be done just because we want to, but what -- I mean, is the management aware of the importance of being part of a certain index? And what are your efforts towards that?

[Interpreted] So I'm from the risk management team. You have quite a bit of questions. So I will tackle 3 of those. First, on our policy reserves, the 6% fixed rate is in liability. You've mentioned that the speed of which is actually contracting. It's quite slow. We are seeing about 1% decline out of the total reserves, but the speed is going to be impacted by factors such as interest rate. And considering the fact that we're in a very low interest rate environment, the [ last ] rate for these products that give you high fixed rate of above 6% is actually very low. So unless there is a significant fluctuation in the interest rates going forward, we see that there will be less of an -- less of a drive towards a more speedy reduction. So all in all, once again just to emphasize, our crediting rate on an annual basis is going down by 10 to 15 basis points. Moving on to your second question, on the value of new business, where the growth speed is not as high as one would think. The drivers that will bring up that value, of course, is the cut in the assumed rate and the increase in the sales of the protection-type product. In light of the IFRS standards, the new regimes upcoming where the mark-to-market valuation is going to be based off of cash flow, we're currently in the process of converting to a liability cash flow model. And in that process, we are looking at and revisiting different actuarial assumptions. And there have been some adjustments that were made to the extent of which was KRW 170 billion; and it is due to that factor, that for this year the increase in the new business value may not seem as high as one had expected. Moving on to your third question. Yes, our RBC-based liability duration is 10.21 years. Actual duration as based off of IFRS and K-ICS is 15 years, so there is about a 5-year increase if we move to that standards, yes. And our asset duration is 9.6 years. So we are continuously trying to narrow that duration gap through ALM, asset liability matching, activities. So for this year, we think that there will be an increase in the fixed income exposures by around 3%.

[Interpreted] I am from the investment strategy [ extension ] [indiscernible]. I will respond to your third and the fourth questions. As was mentioned by our CFO's presentation, we have really put in a lot of efforts to narrow the duration gap. And as you know, our asset duration was 9.6 years. Now compared to the previous year, it was an improvement about 1.2 years. So before 2020, we were in a disadvantageous position compared to our peers in terms of the duration gap, but we think that, by the end of 2020, we were able to achieve the on par with our peers. So as our risk management team leader mentioned, based on K-ICS standards, our liability duration is at 15 years, so we are at a point where we do need to effectively increase the duration for assets. So regardless of the level of the interest rate, we would need to continue to increase the long-dated bond exposure. And -- but fortunately, if you look at the current interest rate movement, it is towards a favorable situation. If you -- and you also asked what our target bond exposure is. We look at domestic bond and overseas bond separately. Under the current RBC regime, the overseas long-dated bonds and their duration is wholly recognized, but so in light of the fact that domestically there is no long-dated corporate bonds market, we have resorted to that instrument. However, under K-ICS, this overseas bond, they actually play a role of further increasing the volatility rather than hedging the interest rate on the liability. So for example, if you look at the movements between domestic and overseas interest rate differential, when they move conversely -- for instance, in year 2000, domestic interest rates had actually gone down, but overseas interest rates had gone down further. In that case, our overseas bonds actually played a big contribution in the overall gains, but if you look at Q4, as we entered into this year, the overseas bond rate had gone up significantly compared to the domestic bond. And in that case, it actually works as a burden for the company. So all in all, what we did was we cut down our exposure to overseas bond and increased domestic bond exposure. And we will basically keep to that approach this year as well, but of course, having said that, we will closely monitor the interest rate situation and market situation in making that final determination. So what happened last year was that we reduced our overseas bond exposure by KRW 6 trillion, and basically that amount had -- or came into the domestic bond exposure. So that relates to the fourth question, on the gains from the sale of the bond. The timing for the sale of the bond, of course, is going to be contingent on the market situation, so we will closely look at how the market plays out and make that decision. Thank you for that.

[Interpreted] I'm from the public relations team, [ Chong Kyung-Wook ]. I will respond to your fifth question, about ESG. So as we mentioned, in 2020, Hanwha Life's ESG ratings by KCGS was an integrated A rating. And in 2021, underneath our BOD, Board of Directors, through our Governance Committee, we will continue to exert efforts to bring about a continuous -- continued ESG-related efforts. And as mentioned previously, in January, the companies have declared and adopted coal phase-out initiatives so that we can live up to our environmental and social responsibilities. We will continuously pursue strategic ESG initiatives to make sure that for this year as well we can gain ratings of A or above. And also, we do have plans to further push for inclusion into the [ DJS world ], the global ESG index. That will be added as our additional tasks and projects for us to implement.

[Foreign Language]

[Foreign Language]

[Foreign Language] The following question will be presented by Kim Jin-Sang from Hyundai Motor Securities.

[Interpreted] I'm Kim Jin-Sang from Hyundai Motor Securities. I just have 2 very simple questions, if you could provide more color on your projections. For instance, you said that your new business margin is going to be about 44%, but what about the growth rate of your value of new business? Secondly, you've mentioned that your loss ratio is expected to go downward, but what about the expense ratio? And it seems to be it's currently flat at 14.9%. What's the direction forward for the expense ratio? And also, just briefly, if you could give us what your thoughts are relating to the projection for the underwriting insurance profit.

[Interpreted] This is Byung Ho with -- from the risk management team. Responding to your question: For this year, we have our subsidiaries that are going to be split off. So in terms of the value of new business growth, on a first months new sales basis, we are targeting to stay flat year-on-year. For protection APE as well, we are looking to stay flat year-on-year. So once again, VONB is maintaining the level as previous year would be the target.

[Interpreted] I'm from the corporate planning and management team. Responding to your question: Yes, the loss ratio is expected to decline. So in terms of the mortality gain, we think that for 2021 there will be a slight deterioration, but we will be able to support [ above KRW 460 billion ] [indiscernible]. In terms of the expense gain, we expect about 1.4 -- 1.7 percentage point improvement in the expense ratio. So as a result, the expense gain in 2021 is expected to be KRW 350 billion, while in 2020 it was KRW 320 billion. So for 2021, all in all the underwriting insurance profit, we think, is going to report about KRW 810 billion.

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[Foreign Language] Currently, there are no participants with questions. [Operator Instructions]

[Interpreted] Well, thank you. That brings us to the end of the 2020 full year and EV presentation for Hanwha Life Insurance. Thank you all for joining us today. If you have more questions, please feel free to contact us at our IR team. Once again, thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]