Samsung Fire & Marine Insurance Co., Ltd. (A000810) Earnings Call Transcript & Summary

[Foreign Language] [Interpreted] Good morning. I am Joon Chang Ho, Head of IR at Samsung Fire & Marine. Starting from this quarter, we've decided to hold the conference call in the morning for more efficient proceeding. Today, Mr. Hong Seong-woo, our CFO, will present key earnings highlights and future plans, which will be followed by a Q&A session with the participating executives based on the presentation materials that we have distributed in advance. Today's conference call is scheduled for about an hour, including the Q&A. Now CFO Hong will start the report.

[Foreign Language] [Interpreted] Good morning. This is Hong Seong-woo, CFO of Samsung Fire & Marine. I will give you a report on the earnings for the first quarter of 2021. In the first quarter, Samsung Fire & Marine posted pretax profit of KRW 576.3 billion and net profit of KRW 431.5 billion, a 163% growth year-on-year, thereby exceeding the market consensus by a large margin. Even when the special dividend from Samsung Electronics is not taken into account, the quarterly net profit more than doubled year-on-year. This is mainly driven by earnings improvement of the long-term line and auto insurance business as well as gains realized from asset management. First of all, the long-term line has pursued qualitative growth strictly based on profitability since the second quarter of 2020, resulting in the dramatic improvement of key efficiency indicators such as persistency ratios and the tied agent retention rate. The risk and loading recurring premiums are also on the rise. In particular, the 13th month persistency ratio has improved substantially, thanks to the efforts to enhance products, underwriting and commission schemes to acquire quality policies. We expect our 25th month and longer-term persistency ratios to reach the highest level in the industry. And the entire company will strive to achieve this target through continuous efficiency gains. Furthermore, we have achieved qualitative growth based on high-margin new business, resulting in the higher portion of protection premiums in the new business portfolio that serve as future income sources. The expense ratio has also improved on the back of strong efforts to reduce expenses. As for the auto line, the combined ratio recorded 94.8%, a 7 percentage point drop year-on-year with improvement in both the loss ratio and the expense ratio. In addition to the impact of temporary decline in the accident rate due to COVID-19 pandemic, it is also thanks to the sustained efforts by the claims organization to improve operation and work efficiency and efforts to attract high-quality customers through the online channel. Moving on to investments. We shifted away from the conservative investment spend and responded flexibly to the interest rate and stock market movements. As a result, we're boosting investment margin and maintaining a stable asset portfolio through optimal portfolio rebalancing. In addition to stabilizing the bottom line of the core business, preparations for future growth are well underway. Let me first comment on our digital strategy. The rapid growth of contactless channels with the emergence of digital insurance companies can pose a threat to the traditional insurers, including Samsung Fire & Marine. Yet we view that these changes can open up opportunities to attract new customers to the stagnant insurance market. To achieve sustainable growth in the digital business environment, we established a digital business division at the end of last year, which is currently in the process of developing our own platform. This initiative aims to transform the -- our insurance sales application to a leading platform in the insurance industry. We're also expanding the customer base by providing customized products and services in partnerships with big tech companies and e-commerce and fintech platform providers. In addition, we wish to build a digital ecosystem that encompasses insurance-related areas, such as health care and mobility, in order to bring further growth to our core business and venture into new business areas. To this end, we're operating a CVC fund and considering various options, including joint ventures and partnerships with relevant companies. As for the tied agent channel, which is our main distribution channel, we plan to build a system where tools for digital consulting will help our agents to showcase products to customers and sign insurance contracts. These features will boost competitiveness by offering differentiated customer services in the digital environment. Let me now give you updates on our overseas business initiatives. We made equity investments in Canopius, a Lloyd's company, in 2019 and 2020. Together with Canopius, we are discussing and developing cooperation models for the U.S. and Asia markets. As for the joint venture project with Tencent in China, documents that describe the sources of investments were submitted by 5 investing companies to the Chinese authorities for a review. This process is well underway so as to complete the deal within this year as originally planned. After obtaining the approval, we plan to establish a detailed business plan together with Tencent and begin operation in earnest next year. Excluding one-off factors, Samsung Fire & Marine delivered the record-high quarterly earnings in the first quarter, and we are determined to sustain this earnings momentum. It is difficult to predict this year's business environment given the nature of insurance business affected greatly by various factors, including floods and typhoons in the summer and heavy snows in the winter. In the past, we suffered negative impact of excessive competition on our earnings performance. Going forward, however, we will stay away from unnecessary competition and continue to improve the quality of our business based on profitability and cost efficiency so as to strengthen the earnings fundamentals. Through these efforts, we will do our best to deliver maximum results befitting the company's status as #1 noninsurance -- nonlife insurance company in Korea. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]