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

Good morning. I am Kim Byung Ho from the IR team at Hanwha Life. Today's earnings call for the third quarter of 2025 will proceed through consecutive interpretation in Korean and English, and the presentation materials are available on our IR website. Today, CFO, Kyung Geun Lee, will first give a presentation, which will be followed by a Q&A session. Let me hand over to our CFO.

[Foreign Language] [Interpreted] Good morning. This is CFO, Kyung Geun Lee. Thank you for joining our earnings presentation. Please note that today's presentation is based on K-IFRS. Let me begin the report on the earnings for the third quarter of 2025. [Foreign Language] [Interpreted] Page 1 is on earnings highlights. In Q3, we achieved net growth of in-force CSM on the back of increase in Protection new business APE, improved profitability of Health and Whole Life Insurance and new business CSM growth. First, Protection APE was up 13% year-over-year to KRW 879 billion, while multiples of Health Insurance and Whole Life Insurance improved to 16.4x and 4x, respectively. In-force CSM grew KRW 226.3 billion quarter-over-quarter to approximately KRW 9.1 trillion, supported by stable inflow of new business CSM of KRW 564.3 billion. We posted KRW 307.4 billion in consolidated net profit, thanks to separate net profit of KRW 136.1 billion and strong earnings reported by domestic and overseas subsidiaries. Let me provide more details on the following slides. [Foreign Language] [Interpreted] Page 2 is the new business APE and CSM. New business APE in the third quarter came in at approximately KRW 1.6 trillion, thanks to a 13% increase Y-o-Y in Protection APE amid intense competition in the market. Supported by the strong growth of protection sales, new business CSM in the third quarter grew 4.1% to approximately KRW 1.5 trillion on a cumulative basis, adding more visibility to reaching a KRW 2 trillion mark for 3 consecutive years. Health Insurance profitability improved to 16.4x on the back of increased sales of high-margin new Health Insurance products such as Lady H Insurance. Whole Life Insurance profitability also improved to 4x through Portfolio restructuring, focusing on medium- and long-term premium paying policies. [Foreign Language] [Interpreted] Page 3 is on sales organization. As of third quarter, the number of FPs was 36,487, maintaining the strongest channel competitiveness in the industry, while the FP retention rate improved to 55.5%. The 13th month persistency remained strong at 89% and the 25th month persistency rose by 15.8 percentage points from the end of the prior year to 79.6%. [Foreign Language] [Interpreted] Page 4 is on in-force CSM. In the third quarter, in-force CSM increased by KRW 226.3 billion quarter-over-quarter to reach approximately KRW 9.1 trillion, mainly due to solid new business CSM growth and gradual reduction in expense variance adjustment supported by improved persistency. We aim to manage in-force CSM stably through improvement in actuarial assumptions and persistency while continuing to pursue new business CSM growth based on high-margin protection product sales growth. [Foreign Language] [Interpreted] Page 5 is on separate net income. Despite greater volatility in the insurance income due to the increase in claims paid across the industry, we posted KRW 136.1 billion in net income on a nonconsolidated basis, showing an improving trend quarter-over-quarter, thanks to the increase in investment profit supported by strong interest and dividend gains as well as strategic asset management. [Foreign Language] [Interpreted] On Page 6, we recorded KRW 307.4 billion in consolidated net income, thanks to solid earnings reported by domestic consolidated subsidiaries such as General Insurance, Asset Management and Securities and the expansion of geography and business domain through newly consolidated overseas subsidiaries such as Nobu Bank in Indonesia in June and Velocity Clearing LLC in the U.S. in July. Going forward, to become a globally competitive comprehensive financial group, we will continue to strengthen our core business competitiveness and enhance both growth and profitability of domestic and overseas subsidiaries. [Foreign Language] [Interpreted] Page 7 is on Asset Management. To ensure stable medium- and long-term returns, we are managing an investment portfolio focused on interest-bearing assets with 63% domestic bonds, 17% overseas securities and 12% loan assets. In the third quarter, investment yield was up 26 basis points quarter-over-quarter to 3.43% on the back of the increase in valuation gains under the favorable global equity market circumstances and improved investment returns from overseas alternative assets. [Foreign Language] [Interpreted] Regarding our bond and loan portfolios, please refer to the relevant slides for more details. Next, Page 10 is on K-ICS and duration gap. Our third quarter K-ICS ratio is estimated to be 157% in consideration of new business CSM inflow and effects of subsidiary acquisitions. Asset and liability durations are 11.93 years and 11.71 years, respectively, with a duration gap of 0.16 years. Recently, the financial authorities measures to improve regulations on the last observed term-related discount rates have created a more favorable environment. Against this backdrop, Hanwha Life aims to manage K-ICS ratio stably in the medium and long run by strengthening fundamental profitability through the expansion of new business CSM, in-force CSM and net profit. [Foreign Language] [Interpreted] Finally, Page 11 is on AI and digital innovation. We are in the process of securing differentiated capabilities by strengthening core business competitiveness through the adoption of AI in the entire value chain, ranging from customer acquisition, underwriting to claims payments and improving customer service experience through AI-supported sales and enrollment process improvement. We will transform ourselves as a Life Solution partner to cover the entire life stages of our customers by expanding the adoption of AI solutions in our business operations. Thank you. We would like to start with the question and answer session.[Foreign Language]

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

[Interpreted] [Foreign Language] I am Jun-Sup Jung from NH Investment Securities. I would like to ask you 2 questions. First of all, your investment profit for the third quarter seems to be quite solid. But on the other hand, your insurance side, the profit and loss has been worsened, mainly because of the increase in experience variance adjustment, which seems to be a bigger increase than the industry average. So I'd like to understand the reason behind this change in experience variance adjustment in the third quarter. Maybe you can give us some more information by giving us some breakdown by product types or other channel types. And going forward, for the fourth quarter, you're going to go through the assumption update process, and this will have an impact on your experience variance adjustment to what degree to your CSM by the end of the year. If you can give us some guidance on the outlook for the fourth quarter and beyond, we will appreciate that. The second question has to do with the potential acquisition of IGIS Asset Management. We've read it in the media. I understand that it's not been finally decided yet. But I'd like to understand the background or context in which you've decided to consider this deal. And if this goes through, then what is your anticipated synergies that you would like to get from this deal versus some of the potential impact on your solvency ratio?

[Interpreted] [Foreign Language] I am [Indiscernible], the Head of the Business Management team. Let me answer your first question on our experience variance adjustment. Recently, we've seen an expansion in experience variance adjustment, mainly because of the increase in our focus on health products, in particular, new protection new business has been increasing. As a result, we have seen an increase in claims payout for living benefits, including surgeries, diagnosis and hospitalization. And this is a phenomenon or a trend that is prevalent across the industry, mainly because of the increase in new sales for Health Insurance policies. [Foreign Language] It is also true that compared to the first and the second quarters in the third quarter, we had more business days. As a result, we've seen an increase in claims payout. [Foreign Language] Recently, in order to respond to the increase in experience variances on the preemptive side, we've been strengthening underwriting by lowering the limits on various benefits and riders. And at the same time, we're strengthening claims assessment process so that there will be no abuse of policy benefits. [Foreign Language] Going forward, in the fourth quarter, with continuous efforts on our side and also given the fact that we will have fewer business days in the fourth quarter compared to the third quarter, we believe that experience variance adjustment will be improving in the fourth quarter. And continuing on into the 2026 year, we will continue to maintain preemptive and post-event management. And we're also expecting an increase in risk premiums as a result of updates to our assumptions. So I believe that experience variance adjustment amount will be stabilizing in 2026.

[Interpreted] [Foreign Language] I am Kim Jun, Head of Actuary team. Let me add some more information. When we look at the claims variance adjustment, the cumulative amount is KRW 269 billion. And of that amount, KRW 175 billion is for diagnosis and surgery-related benefits that have been paid and KRW 64 billion for hospital visits. [Foreign Language] And what we are focusing on in our review process is about KRW 40 billion that incurred from policies that were sold before 2018 regarding diagnosis and surgery benefits and KRW 90 billion incurred from the more recent policies. In addition, KRW 50 billion from policies order sold before 2018 regarding hospital visits and hospitalization. [Foreign Language] And regarding the KRW 90 billion, as was mentioned by the Head of the business management team, there are some one-off effects, including the effect of underwriting and several one-off factors and the behavior of over excessive medical services. So these are rather temporary components. And the remaining KRW 90 billion for that, we continue to review statistics and consider whether we need to go ahead with assumption updates.

[Interpreted] [Foreign Language] I am the Head of the Product Development team. Let me add some more. As there is an increase in health policy sales across the industry, the loss ratio has been worsening in terms of its trend. However, we have been taking a number of measures to improve the product design. In particular, we've already started excluding some of the coverages that induce or encourage adverse selection and such measures been already implemented from August to September in our product design and sales. In addition, we are in the process of restructuring and improving the product structure or pricing structure so that we will be able to secure more risk premiums. And so overall, while we will continue to push forward with the sales of health and protection policies, we hope to be able to stabilize the loss ratio trend.

[Interpreted] [Foreign Language] I am from the Corporate Planning team. Let me answer your question on our potential deal with IGIS. Well, currently, this whole process is ongoing. So please understand that I won't be able to give you any specific details. However, what I can say is that Hanwha Life Insurance has been exploring diverse strategic directions to build and expand our foundation for sustainable growth. And as part of this strategy, we've seen that IGIS has very good portfolio of real estate assets and alternative investment assets that have sizable growth potential. And IGIS Asset Management has strong asset management capabilities. So, we are considering potential long-term synergies that we can create. And if there's any decisions to be made in the future, we will make sure to communicate this with the market in a transparent manner.

[Interpreted] [Foreign Language] I have one follow-up question. So, in the fourth quarter, we are going to update your set of assumptions. So, to what extent can we anticipate change to your experience variance?

[Interpreted] [Foreign Language] I'm [Indiscernible] from the actuary support team. Let me address your question. We are now in the process of reviewing assumption updates for the end of 2025 in consideration of market interest rate changes as well as experience data. We are trying to do this in a rational manner to produce positive results. So, we are planning to make assumption changes based on various statistics and basic assumptions so that it will have a positive impact overall. However, with assumption changes, there may be some downward impact on the CSM, but we are currently in the process of getting all these internal verifications. And later, we'll get accounting audited. So please understand that we won't really be able to mention any specific financial impact.

[Interpreted] [Foreign Language] The following question will be presented by Hyun Lim from Shinhan Investment & Securities.

[Interpreted] [Foreign Language] I'm HeeYeon Lim from Shinhan Investment Securities. I have just one question. So, when we look at your new business CSM on a Y-o-Y basis, we've seen an increasing trend, but there is a downward trend in your Health and Protection CSM or new business CSM. So, I'd like to understand if there is any particular reason. Maybe it is because of your product portfolio adjustments or something else. So, if you can give us some color, we would appreciate it.

[Interpreted] [Foreign Language] I am from the Head of the Business Management team. Let me address your question. In the third quarter, we've continued to launch new products and revise the existing products as well as promoting the sales of health policies in order to maintain a sizable monthly initial volume and drive-up profitability. And recently, thanks to the increase in sales of policies with longer-term premiums paying, we were able to increase the multiples for whole life policies as well. And in driving up sales for health policies, we are trying to increase their contribution to new business CSM while continuing to improve profitability. However, as you can see, there was some downward trend in our health policy sales in the third quarter, but this trend will be reversed in the fourth quarter. [Foreign Language] So going forward in the fourth quarter, we will continue with our strategy of profitability-focused portfolio management by continuing to sell medium- and long-term premium paying Whole Life policies and Health policies. And we believe that we will be able to meet our target of new business CSM of KRW 2 trillion this year as well. And our guidance for next year in terms of new business CSM is also more than KRW 2 trillion. And at the same time, we will continue to improve the profitability so that we can improve CSM multiples as well.

[Interpreted] [Foreign Language] I actually was caught off because of the microphone issue, but so I'd like to ask another question. I believe you are in the process of developing your business plan for 2026. So compared to your peers and competitors in the market, what are you going to do to differentiate yourself in the market, maybe in terms of product strategies and sales strategies, if you can share with us some of these, we would appreciate.

[Interpreted] [Foreign Language] I am Sung-Kyun, the Head of the Product Development team. Let me comment on our product strategy for 2026. From the perspective of CSM, it is very important to increase the volume of health products. But in the Health Insurance market, competition has been intensifying. So, for our product strategy for 2026, we would like to respond to the recent trend of Integrated or Comprehensive Health Insurance policies or products that have been mainly led by P&C companies, and we would like to strengthen our competitiveness in designing and selling Comprehensive Health Insurance products. On top of that, this year, we've secured 6 types of exclusive use rights for Hanwha Life Insurance. And likewise, we'd like to continue to maintain our product design leadership. So, in order to maintain our leadership, we will develop new Health Insurance covers going forward. [Foreign Language] And secondly, Hanwha Life Insurance is a strong leader in whole life products, but its contribution to CSM is rather lagging. So, in order to respond to this, we've already introduced the new Hanwha Whole Life product. And likewise, we will continue to develop and sell whole life policies with medium- and long-term premium paying design so that we can improve our portfolio. And in this way, whole life policies will also be able to make meaningful contribution to CSM. Likewise, we will move in a direction that will drive new business CSM and strengthen our product portfolio.

[Interpreted] [Foreign Language] I am Kyung-Wook Chong, Head of Marketing Enhancement team. Let me comment on our sales strategies for 2026. We will continue to expand our sales organization to reinforce our market leadership by increasing the FP organization. Compared to the end of 2021, our sales organization or the number of FPs in 2025 has increased by 59%. [Foreign Language] And as for Hanwha Life Financial Service, in order to respond to regulatory changes starting from 2026, we will continue to recruit and train and retain excellent and productive financial partners. [Foreign Language] And at the same time, we are trying, we will diversify our sales portfolio, focusing on medium- and long-term premium paying Whole Life policies and high-margin Health policies. [Foreign Language] So, in short, we will maintain the current sales volume while driving up profitability. So, our sales strategy will be focused on profitability.

[Interpreted] [Foreign Language] The following question will be presented by Dan Wang from JPMorgan.

I have 2 questions. The first one is related to the core capital. We know that in Korea, the regulator intends to introduce a core capital regime for the Korea insurance probably next year. What is the current core capital level based on Hanwha Life's estimates? And if their capital adequacy might face some certain pressure, what kind of the solvency management tools does the company plan to boost the like the co-solvency? That's my first question. The second one is also about the dividend proposal. So far, we know that the regulator gives a preferential treatment on the surrender value reserve provisioning depending on the individual insurer [ex ratio]. So, from the stance of the management, what can we expect the dividend proposal happening maybe not this year? So what is the company view maybe next year? Can you give some like the management's view on this?

[Interpreted] [Foreign Language] I am Hsiang Kau, Head of the Risk Management team. Let me address your first question on our core capital ratio. As of the end of June of 2025, our estimated core capital ratio is 59%. While the Korean financial authorities have announced a plan to introduce core capital regulation. The timing or the recommended levels have not been decided yet. And it is the position of the government that they will engage with the industry in an extensive manner to increase the acceptability of this new regulation among the players in the industry. And also they are planning to ensure soft landing by providing a long period of grace period. [Foreign Language] In order to strengthen our core capital ratio, on one hand, we will continue to increase available capital through profit generation from our business operation and efforts to reduce required capital. And we are also utilizing, we can utilize our core insurance schemes and continue to strengthen our duration gap management and utilize a process for internal control model. And going forward, we will continue to make efforts to strengthen our core capital ratio, believing that the regulation will be implemented in a gradual and long-term manner. And at the same time, we're consulting with the government authorities and have been communicating to the government that under the Europe Solvency II model, CSM is recognized as part of core capital.

[Interpreted] [Foreign Language] I am [Indiscernible] from the finance team. Let me address your question on our dividend proposal. So currently, we've been communicating to the financial authorities about improvement in regulations regarding surrender value reserving. And recently, the government has been considering measures to rationalize or to improve regulations on surrender value reserving requirements. So if such regulation is revised in a more favorable manner, we believe that we will be able to pay dividends this year for 2025. Do you have any further questions?

[Interpreted] [Foreign Language] The following question will be presented by [Sio Hadidi Jaja] from JPMorgan Asset Management.

I have 2 questions. So the first one is a follow-up on the question on the potential acquisition of IGIS Asset Management. Can you share how you plan to fund this acquisition? And what would be the impact to your K-ICS solvency ratio? And the second one is, I think as of the second quarter, your target K-ICS ratio for the year is in the mid-160%. Is that still the goal? And given that in the third quarter, the K-ICS solvency ratio was 157%. What is your plan to increase to mid-160 by the end of fourth quarter? Do you need to issue sub debt to enhance your K-ICS ratio?

[Interpreted] [Foreign Language] I'm Jong Guk Yoon from the corporate planning team. And let me comment on your question on your IGIS asset management-related situation. Well, no specifics have been decided when it comes to pricing and conditions of acquisition. So please understand that I won't be able to comment on any specific funding plans or other matters specifically related to this deal. Please understand.

[Interpreted] [Foreign Language] I'm from the risk management team. Let me comment on your K-ICS -related question. [Foreign Language] So regarding our K-ICS outlook for the end of 2025, well, interest rates have been going up since September, which is a positive factor for our K-ICS ratio, but we will have to wait and see how interest rates will be set around the end of the year. And in the meantime, for the fourth quarter, we are continuing to boost new business CSM, and we're trying to minimize claims variance adjustment amount. And so, our year-end K-ICS target is around 155%. And we don't have any plan to issue any sub debt. Do you have any further questions?

Yes. Maybe one follow-up question from me is I guess I appreciate that you cannot share more details about the funding plan on potential acquisition of TGS. But maybe if you can share your philosophy on solvency ratios and maybe core capital ratio. Do you want to pursue the acquisition with the assumption that you will maintain certain minimum K-ICS ratio and also minimum core ratio? And going forward, I understand that as of the second quarter, your core ratio was 59%. Do you have any target in terms of what core ratio, what core capital ratio that you would like to maintain maybe over the next 1 to 2 years?

[Interpreted] [Foreign Language] I'm from Corporate Planning team. Let me supplement additional information. Well, as you mentioned, we are now in the process of going through this particular deal in, so regarding IGIS Asset Management, we cannot really disclose anything about our funding approach. But once again, we will consider a number of factors, including our core capital situation and other financial potential impact on our capital adequacy. But what I can say is that as soon as a decision is made, we will make sure to communicate this with the market in a transparent manner.

[Interpreted] [Foreign Language] I'm Hsiang Kau from the risk management team. Let me comment on your question regarding our K-ICS ratio and core capital ratio management. Recently, the financial authorities have announced the plans to revise or adjust the liability discount rate tightening program. So, we have less burden on our K-ICS ratio management as of now. [Foreign Language] And regarding the introduction of core capital-related management, timing and levels have not been decided yet, but we are now in the process of considering various potential scenarios. In particular, we are planning to continue to strengthen our core capital levels in the medium and long term by improving the available capital through more profit generation and by reducing required capital. And so our long-term core capital target is 100%. Does that answer your question?

Yes, they did.

[Interpreted] [Foreign Language] The following question will be presented by Jane Chen from China Life Franklin AM.

My question is mostly answered by the previous investors already. But I have a follow-up question on your potential inclusion into the CSM -- inclusion of CSM into the core capital ratio. Could you elaborate more on the this understanding? And have you communicated with the FSC already on this matter? And what is the potential procedure that they will adopt because it sounds likely that it will help really eliminate part of the core capital ratio pressure on our 2026 number.