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

Now we will begin the presentation on Hanwha Life Second Quarter of Fiscal Year 2026 Earnings Results.

Good afternoon. This is Sang-Wook Choi from the IR team at Hanwha Life Insurance. Today's earnings call for the first half of 2026 will proceed through consecutive interpretation and the presentation materials are available on our IR website. Today, CFO, Yoon Jong Guk will first give a presentation, which will be followed by a Q&A session. Let me now hand over to our CFO.

Good afternoon. This is CFO, Yoon Jong Guk. Thank you for joining our earnings presentation. Let me begin the report on Hanwha Life's earnings for the first half of 2026. Page 1, first half highlights. In the first half of 2026, we delivered solid financial performance across all areas of our business, both insurance and noninsurance, driven by strengthened competitiveness in our core business and continued diversification of our business portfolio. First, new business CSM for the first half reached approximately KRW 1.3 trillion, marking the highest first half level since the adoption of IFRS 17, supported by our profitability focused sales strategy. New business profitability also improved to 11x. Consolidated net income increased to KRW 904.5 billion, driven by a more than 100% year-on-year increase in stand-alone net income as well as strong earnings growth at our major domestic and overseas subsidiaries. I will walk you through the details starting from the next page. Page 2, new business CSM. New business CSM was KRW 610.9 billion in the first quarter and KRW 689.2 billion in the second quarter, bringing the first half total to KRW 1.3 trillion, up 40.5% year-on-year. In terms of profitability, core life insurance profitability increased to 10.5x in the second quarter, supported by increased sales of whole life products with medium to long-term premium payment period. As a result, overall new business profitability for the first half reached 11x, an improvement of 3.8x compared to the previous year. In the second half, we will continue to strengthen product competitiveness and profitability by further expanding sales of medium- to long-term whole life products and launching new products designed to lead the dementia and long-term care market. Page 3, sales force. The number of financial consultants continued to grow in the first half, led primarily by Hanwha Life Financial Service reaching 38,092. The 13-month persistency reached 90%, the highest level since the introduction of the new system, while the 25th month persistency also improved to 77.4%, continuing its steady upward trend. Going forward, we will further strengthen our distribution channel competitiveness by leveraging our industry-leading brand strength and enhancing our sales support infrastructure through the AI STS system and other initiatives. Page 4, in-force CSM. In the first half, in-force CSM reached approximately KRW 8.9 trillion, an increase of KRW 214.8 billion from the beginning of the year. This was driven by a solid KRW 1.3 trillion inflow of new business CSM and we do experience variance adjustments despite the application of new guidance for loss ratio and expense assumptions. Going forward, we will continue to grow our in-force CSM over the medium to long-term by improving persistency rate and further refining our assumption management. Page 5, consolidated net income. First, stand-alone net income increased by 183.9% year-on-year to KRW 510.2 billion, driven by improvements in both insurance service results and investment results. Consolidated net income also rose by 96% year-on-year to KRW 904.5 billion, supported by broad-based earnings growth across our major subsidiaries, including KRW 215 billion from Hanwha General Insurance, KRW 56 billion from Hanwha Investment Securities and KRW 103 billion from overseas subsidiary. Meanwhile, net income attributable to controlling shareholders reflecting our ownership stake in the subsidiary increased by 119.8% year-on-year to KRW 771.9 billion. Page 6, insurance and investment profit. Insurance profit for the first half amounted to KRW 285.3 billion. Looking at the quarterly breakdown, experience variance, expense experience variance and losses on onerous contracts all improved compared to the previous quarter. Investment profit increased significantly year-on-year to KRW 354.8 billion, driven by steady growth in interest and dividend income as well as solid performance from alternative investment. Page 7, financial performance of major subsidiaries. Supported by broad-based earnings growth across domestic and overseas subsidiaries, their combined net income reached KRW 501 billion in the first half, continuing the steady upward trend since 2023. The earnings contributed by overseas subsidiaries also increased to 11%, driven by continued business expansion across regions and markets. Going forward, we will continue to strengthen our earnings generation capacity by improving subsidiary profitability and expanding synergy with Hanwha Life Insurance core operations. Page 8, asset management. We maintain a well-balanced investment portfolio comprising domestic bonds, 58% overseas securities, 20% and loans 13%. Despite heightened market volatility, including rising interest rates and exchange rates as well as increased uncertainty in the equity market, our investment yield stood at 3.34%, up 14 basis points from the end of last year. Please refer to the slide on Page 9 and 10 for details on our bond and loan portfolio. Next is Page 11, K-ICS and duration gap. Despite the introduction of new actuarial assumption guidelines, our K-ICS ratio is expected to reach 167%, up 9.5 percentage points from the end of last year, supported by an increase in available capital resulting from higher earnings and rising interest rates. Assets and liability duration stood at 11.36 years and 10.10 years, respectively, both shorter than in the previous quarter, resulting in a duration gap of 0.93 years. Going forward, we will continue to manage our capital adequacy on a stable basis over the medium to long term by increasing available capital through profitability focused improvements to our business fundamentals while also working to reduce required capital. This concludes our first half 2026 earnings presentation. We will now start the Q&A session.

[Operator Instructions] The first question will be provided by HeeYeon Lim from Shinhan Investment & Securities.

First of all, I appreciate the company's strong earnings performance. I have 2 questions. The first question is related to a news report that was out in the last weekend related to the possible change in the surrender value reserve framework. Assuming that this proposal is actually put into practice, if you want to think that it will be applied from the end of the annual closing period, then it poses a question related to what the distributable income will be and how it will be return to the shareholders as a result of that change. So assuming that this is the proposed plan that was reported in the newspaper is actually executed, I would like to hear from Hanwha Life what it has got specifically for this end and how it intends to operate its shareholder return policy. Moving to my second question is related to your Q2 CSM adjustment, which has actually been affected in a significant portion, but this is also related to the application of the actuarial assumption guideline. But if possible, could the company give us a breakdown in respect to the specific impact that such the guideline on the company's CSM performance?

This is Kim Dong-Hee from the finance team, and I will answer your first question. Recently, there was a report related to the reserving ratio of protection changing to 25% for the savings insurance 35%. This is designed to rationalize despite our reserving rate. However, regarding this report, the financial regulator has come out to say that there is nothing confirmed or finalized in relation to the update to the relevant framework. And so in this respect, assuming that we are now able to apply 25% for protection products and 35% for the savings product, then if this change does take place, then Hanwha Life will be able to secure efficiently distributable earnings income that as a result of this change. However, I do want to stress that this matter is not confirmed. And as such, I believe that it is too early for us to comment related to our dividend plan or policy. When we get better clarity related to how the framework will be changed, then I believe that it will be the right time for us to come back and talk about our dividend.

This is Jun Kim, I am from the actuarial team. And I would like to answer your second question related to the impact on the actual assumption guideline having on our CSM adjustment. Related to the actual assumption guideline for Q2, we could talk about 2 major impacts. One is related to the change in the actuarial assumption, which had an impact of KRW 200 billion for the CSM adjustment and the other was the change. So for the other, that amounted to KRW 40 billion for the CSM adjustment. So in total, the CSM adjustment amount came to KRW 240 billion, minus KRW 240 billion. And to give you a detailed breakdown related to first, the minus KRW 200 billion portion, this is related to the change in assets and also specifically for the actuarial assumption change, that amount came to minus KRW 120 billion. And for the other portion, which is the balance of minus KRW 80 billion, this is the reversal of losses. And the other category, which recorded minus KRW 40 billion, the detailed breakdown is that there was an increase of minus KRW 70 billion. However, due to the volume change, there was a plus KRW 30 billion effect also put into the calculation. And in respect to the impact regarding the minus KRW 120 billion, if you take into consideration the company's insurance claims experience and also for the minus KRW 80 billion, the company's loss capability for the variable insurance, we believe that this change is actually quite positive for the company in the mid- to long-term horizon.

I hope that was sufficiently answered your question.

The following question will be presented by Heewon Choi from Morgan Stanley.

I have 2 questions related to the first question. In respect to the Q-o-Q increase related to your K-ICS ratio in the second quarter, is it possible for the company to provide the breakdown regarding the movement vis-a-vis the government -- 10-year government bond, what is your K-ICS ratio sensitivity? And finally, related to the end of Q2, what was your Tier 1 capital ratio? And I would also like to hear from the company what you expect to report in terms of the year-end K-ICS ratio as well as core capital K-ICS ratio. Moving to my second question. In this earnings presentation, the company was able to give us a detailed breakdown related to your consolidated earnings. I would like to get a little bit more information related to the earnings from your overseas subsidiary in the mid- to long-term, if it is possible, could the company share possibly your overseas subsidiary expected performance in the mid- to long-term horizon. So if it is possible please provide that guidance?

This is Kau Hsiang from the risk management. Let me answer your first question. Compared to March, our June K-ICS ratio was up by 4.9 percentage points. And as a result, we look at the breakdown, there is a positive factor, which was the higher interest rate as well as the higher exchange rate, which attributed to 4 percentage point increase. And also for the new business CSM that also contributed to the 4 percentage point increase as well. Also the earnings gain and capital gain both contributed to the 3 percentage point increase as well. But we also had a negative factor, meaning that due to the actual assumption guidance, there was a minus 2 percentage points decline and also related to other types of risks in the insurance and the credit market that is minus 4 percentage points. And so moving on to your next question related to the interest rate sensitivity, we can do the sensitivity analysis by assuming there is a movement of 10 basis points, but you have to look at the interest rate for the domestic market versus the overseas market. So assuming that we're looking at the domestic market and the interest rate goes up by 10 basis points, then our K-ICS ratio will go up by 1 percentage point. If you're assuming that for the overseas interest rate, if it goes up by 10 basis points, then it has an offset of driving down our K-ICS ratio by minus 0.6 percentage points. And so basically, if we do the combined for the domestic as well as overseas interest rate movement by 10 basis points, then that sensitivity will equate to plus 0.4 for the K-ICS ratio. And just to follow up on some other points that you asked in your first question. For Q2, the expected Tier 1 capital ratio, and we believe that it could actually slightly decrease in June compared to March. Despite the fact that we have higher rates and we had actually greater earnings, we also had greater required capital requirement as well. As such, we are currently in the process of closing the June numbers. And so once the process is completed and we have a firm number to present and the breakdown, we will make sure that we have the IR team communicate this you. And just the last part of your question related to our target K-ICS ratio at the year-end, we hope to be above 165%. And for core capital K-ICS ratio, our target is more than 60%. In order to achieve this, the company has a clear plan in place. So for example, we will be making sure that there is a tight management of the claim experience ratio as well as applying the actuarial assumption and also on the area for the new business as well as taking out the core insurance, the company will make every effort to minimize volatility as well as the risk target.

This is Jung Yong-Ho from the Overseas Business. You asked about the performance related to our overseas subsidiary and our expectation for their performance in the second half. I would like to mention that in respect to the performance of our overseas subsidiaries, they were able to make a contribution of cumulative net income increase of KRW 130 billion, representing 11% of the consolidated net income for the company. This is a result of the effort that we have put in, in respect to continuously diversifying our portfolio as well as the business lines and also the region. We believe that such outcome is a result of the subsidiaries making tangible progress in their performance. And this is not only for the life insurance business subsidiaries that we have. The newly acquired non-life businesses also have been performing very strongly. More specifically, I'd like to also mention that for the Vietnam, I'd like to say that they were able to pull insurance at investment income of KRW 170 billion, and that takes them to pretax earnings of KRW 41 operating profit and the net income is KRW 3.2 billion -- sorry, KRW 32 billion. And we also have made sure that in Indonesia for the Nobu Bank, they are doing their business mainly based on the merged products as well as interest income. And Nobu was able to generate the operating income of KRW 37 billion and net income of KRW 29 billion. And so continuing on the performance that we have seen in the first half, our overseas subsidiaries will continue to make sure that they are able to drive our CapEx growth and profitability and also at the time and at the same time, minimize the global volatility that we see -- we will see. We believe that it's very much important that the companies are able to achieve top line growth. But at the same time, they are contributing to the ecosystem that we are actually trying to build out. And that in 2026, we set a goal for their pretax operating profit to be KRW 200 billion. We are well above the target, and we believe that this target that we set up for this year will be more than achieved. And for the 2030 target, we believe that we are also going to be able to achieve the KRW 304.1 billion target. And when this happens, then their contribution to the consolidated earnings will far exceed the current level of 11%. And in the second half, we'll make sure that we continue to drive this growth momentum for the overseas business to be able to continue to show very strong earnings performance and at the same time, continue to identify promising opportunities overseas.

The following question will be presented by Yong Jin Seol from iM Securities.

I myself also have 2 questions. The first question is related to going back to what we discussed, the actual assumption having an impact of KRW 240 billion. But if we think about the previous quarter impact of KRW 700 billion, we met this and that will be around KRW 470 billion. And I would like to understand if there were other factors. I can assume that there were some recurring lapses, but I would also like the company, if possible to comment on other factors contributing to this amount. And there is also a discussion related to thing that happen to the simple actual assumption as well. And has the company done any internal analysis what the impact will be if such an assumption change were to take place. I'd also like to follow up on related to the reversal of losses on onerous contract. Was this as a change of the framework? Or was there another factor that has contributed to the reversal of the losses on onerous contracts. Moving to the second question is related to the increase that we have seen related to the surrender value reserve, which actually grew slower than the previous quarter. But I would assume that this is also somewhat tied to the full usage of the retained earnings portion. And so is it possible for the company to comment what the actual increase has been? And when you were talking about the expected capital Tier 1 ratio at the year-end, you also factor this thing as well giving us the full guidance.

This is Jun Kim from the actuarial team. And related to the current quarter, I would like to walk you through the detailed breakdown. First, in respect to the outcome that we have mentioned, this is inclusive of the updated breakeven for more specific related to the actual amount per item for the experience adjustment that amounted to KRW 592 billion and in respect to the performance inclusive of the volume as well as the actual performance that amounted to KRW 246 billion. So while we were talking about the minus KRW 240 billion, we have to look at the performance factors as well. And so we already mentioned that for the actuarial assumption change, that portion was minus KRW 120 billion and for PSA, RA and also the reversal of losses on onerous contract that amounted to minus KRW 225 billion. So if we were to just carve out the impact from the change in the framework that amounts to minus KRW 150 billion. And so following what the CFO has stated during his presentation in the first half related to the experience adjustment, that amount was KRW 890 billion. And the earnings effect was in the quarter, KRW 240 billion, taking us to KRW 560 billion. And once again, related to the actuarial assumption change that impact is minus KRW 120 billion, and there are other adjustments that we actually roll up and can say it's around KRW 250 billion. And lastly, related to the impact related to the reversal on losses on onerous contract specific to the variable insurance that we actually saw a change in assumption, which led to the CSM increase. And so previously, we have recorded a PSA loss, but this actually has not changed to a positive. As a result, we are able to recognize KRW 80 billion from the previously what we recorded as a loss for the onerous contract.

This is Kau Hsiang from Risk Management. And going to your question whether or not we actually limit earnings, yes, in Q2, there was some respect to the related limit. And once again, as we communicated to you our year-end target for the core capital K-ICS ratio to be above 60%, it is inclusive of it. So once again, we took into consider this and then we're able to communicate to you that company is targeting the core capital Tier 1 ratio to be 60% or higher. And thus, we are working very hard to have very tight management related to claims experience as well as to tighten our internal approval so that we are able to keep this target.

I hope this answers your question.