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

Good morning, and good evening. Thank you all for joining the conference call for the Samsung Fire & Marine Insurance Earnings Results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Samsung Fire & Marine Insurance's Second Quarter of Fiscal Year 2025 Earnings Results.

[Interpreted] Good morning. I am Helen Park, Head of IR at Samsung Fire & Marine Insurance. I would like to thank you all for taking the time to participate in today's 2025 First Half Earnings Results Presentation. Today's session will begin with an overview of the fiscal year 2025 first half business performance followed by a Q&A session. The session is expected to last approximately 1 hour. With that, I will turn it over to the CFO for the presentation.

[Interpreted] Good morning. This is Jun Ha Kim, CFO of Samsung Fire & Marine Insurance. Today, I will be presenting our business results for the first half of 2025. On a consolidated pretax basis, Samsung Fire & Marine Insurance had posted in quarter 1, KRW 822.3 billion in profit, which was a decline of 10.4% year-on-year. However, in second quarter, we reversed the trend, reporting KRW 842.6 billion, an increase of 4.5% year-on-year. Cumulatively, first half profit came in at KRW 1,664.9 billion, down 3.4% from the previous year, with net income attributable to majority shareholder at KRW 1,245.6 billion. Moving on to business breakdown, beginning with the long-term insurance line. Despite intensifying competition for new business, particularly in health care insurance, we responded with differentiated product development initiatives and strategic channel strategies. This drove monthly new premiums in the protection business to KRW 18.5 billion, up by 1.3% year-on-year. New business CSM for the first half was KRW 1,421.2 billion, down 13.2% from last year. However, second quarter CSM multiple increased to 13.8x, improving new business profitability by 1.9x quarter-on-quarter. As a result, total CSM volume reached KRW 14,577.6 billion, expanding by KRW 503.7 billion year-to-date. Despite an increase in CSM amortization driven by growing CSM volume, insurance profit decreased 7.9% year-on-year to KRW 833.4 billion. This was due to reduced claims variance margins led by large natural catastrophes and worsening loss ratios in certain risk coverage. In the second half, we will focus on generating quality revenue from high CSM margin products while strengthening the foundation for CSM profitability through improved operational efficiency. And by expanding our sales base and enhancing organizational capacity, we aim to solidify our market position and establish a leading earnings structure accompanied by fundamental business improvement. Moving on to Auto Insurance. While the overall auto insurance market contracted due to basic premium cuts and intensified competition on discount riders, Samsung Fire & Marine Insurance maintained KRW 2.765 trillion in revenue, a slight decline of 1.1% year-on-year, largely supported by improved renewal rates in our in-force business and continuing growth in the direct channel. Auto insurance profit fell 79.5% year-on-year to KRW 30.7 billion despite lower year-on-year accident frequency and improved expense ratio, mostly due to impact of cumulative rate cuts and increase in loss per claim driven by heavy snowfall in the first quarter and rise in insurance-related inflation. In the second half, against the backdrop of heightened level of uncertainties in the operational environment, we'll secure revenue stream through profit-focused pricing strategies, enhance our claims management capabilities and strengthen our new growth model to establish a sustainable and profitable business structure. Next is the P&C Insurance. With revenue growth in both domestic and global businesses, insurance revenue reached KRW 847.3 billion, up 5.9% year-on-year. However, an increase in large claims pushed the loss ratio up by 2.1 percentage point year-on-year to 62.9%, resulting in insurance profit to decline 8.3% year-on-year to KRW 106.8 billion. In the second half, we will strengthen our property insurance pricing policies while diversifying our portfolio, focusing on specialty and marine insurance. We will also enhance accident prevention and safety control measures to achieve balanced growth of both revenue and profit. Next is asset management. Despite a reduction in valuation gains due to greater financial market volatility, we increased interest and dividend gain through improved asset management efficiency, such as bond portfolio adjustment to improve running yield. As a result, for first half of 2025, our investment yield was 3.64%, up 0.14 percentage point year-on-year and investment profit on an AUM basis totaled KRW 1,505.2 billion, a 5.6% increase from last year. In the second half, we will continue to focus on proactive risk management and strengthen asset quality for both domestic and overseas real estate and retail lending. We will also secure high-yield interest-bearing assets and continue to diversify our portfolio towards higher return assets while enhancing asset allocation and workforce efficiency to maintain a stable profit base. Despite ongoing internal and external uncertainties and intensifying market competition, Samsung Fire & Marine Insurance continues to respond swiftly and proactively to both major and minor changes and challenges. In the first half of 2025, all business divisions focused on widening competitive edge of our core businesses. We also carried out the first phase of share cancellation as part of our shareholder value enhancement plans and also made the decision to acquire additional stake in Canopius, reinforcing our commitment to secure future growth engines. As we move into second half of the year, we will strive for change and innovation to pursue a differentiated and balanced growth strategy rooted in strong fundamentals, making 2025 a year of enhanced shareholder value. Thank you.

[Interpreted] That concludes the overview of our financial performance. We'll now begin the Q&A session. Our executives from various business divisions are also present to respond to your questions. [Operator Instructions]

[Interpreted] [Operator Instructions] The first question will be provided by MW Kim from JPMorgan.

[Interpreted] I am Kim Myung Wook from JPMorgan. My first question relates to your solvency capital. As we see an increase in the CSM volume and quite robust bottom line, and if we assume that you will be paying out less than 50% against your profit and even if we consider for your investments into Canopius, I would assume that by the year-end, your solvency ratio will be higher versus where we are. And also in terms of the sensitivity, the K-ICS sensitivity analysis, when there is an interest rate cycle that is going down, it actually impacts the solvency ratio in a positive manner. So compared to what you have communicated with us during the previous calls, because at that time, you did say that your year-end solvency ratio will be lower than where we were. So can you provide us with the new guidance as to where that solvency rate would be at the end of the year? And also, the government has adjusted the minimum solvency target from 150% down to 130%. I would like to know whether you have any -- made any changes to your solvency target? Second question is on the best estimate liability, just a quick check on the numbers. Compared to the March and the December figure, there was a significant drop. Why is that? What is the driver behind this movement? Is it due to discount rates or change in the contract with the policies?

[Interpreted] Yes. So responding to your first question, I am VP of RM Team, Che Bu Gyu. Yes, as you've mentioned, compared to -- on a year-to-date basis, there was a 10% increase in terms of the CSM at KRW 274.5 trillion as of end of June. The solvency ratio corrected on the percentage. Yes. And the reason is because of the changes in the macroeconomic backdrop with the increases in the interest rate and the equity prices and the net profit making that contribution as well as increase in CSM. And so regarding the K-ICS ratio that we are assuming at the end of the year due to these recurring drivers such as increases in profit and increases in the CSM net addition, there are some upside impact, yes. However, there are also downward pressures to the K-ICS ratio in the extent of about 15 to 16 percentage point downwards if we consider for paying dividend to our shareholders as well as our global investment, including the Canopius investment. So although I cannot be definitive as we see some of the macroeconomic indicators moving towards our disadvantage. For instance, the overall interest rate down cycle, the whole speed and the extent is at this point being moderated. So at the end of the year, we cannot be sure as to where that figure will be, but we believe that it will be above 260%. You also asked about whether we have plans to make changes to our K-ICS ratio target. As we speak, the financial authorities have set up a task force team regarding the asset soundness of the financial industries, and they are in the process of rationalizing the discount rate. And the decision is yet to come. We will closely monitor how it goes, how it develops. And of course, depending on that situation, we may come back and revisit our target. But as of this point, we are maintaining our target at 220%.

[Interpreted] I am VP of Long-term Insurance Strategy. I am [ Donggu Shin ]. I will respond to the movement in best estimate liability. Under the IFRS standards, basically, the liabilities are comprised of BEL, RA and CSM. When we actually make new premium sales, that's going to have an impact of plus KRW 3 trillion on the CSM line items, whereas we will be booking negative KRW 3 trillion under the BEL account. So that means that when there is that sales, the CSM will increase, and on the other side, the BEL will decline. But that does not mean to say that BEL will always come down. Basically, recently, if you look at our trend, we had a significant new business volume. And so compared to the in-force, the new CSM, the share that has been accounted for the whole portfolio was much bigger. So where there is a steep increase in the CSM, then BEL in that case will slightly dip.

The following question will be presented by Do Ha Kim from Hanwha Investment & Securities.

[Interpreted] My first question relates to the recent revision in the tax law. There were certain provisions that were revised that has certain implications for financial institutions and insurance companies as well. So as of the end of this year, would there be any adjustments that will be made to your liability accounts? And if you could break the impact between the BEL and the CSM, that would be helpful. Second question is, I think in terms of the experience variance margin that you have posted, you defended it quite well. But across -- not just for SFMI, but across the insurance industry, we see that there's quite a bit of a year-over-year increase, actually more than a double-digit increase in terms of the claims related to the incurred claims aspect. So if you could break that down between medical indemnities and the others, that would also be quite helpful, especially for the non-medical indemnity products that you've sold after 2023. If you could share with us the details, that would be helpful in us making the assumptions going forward.

[Interpreted] I'm the VP of Corporate Management Support. Regarding the revisions to the tax code, the Tax Act, the related educational tax that you've mentioned will be reflected starting next year. That's according to the current bill that has been tabled. And also for the corporate income tax, the bill, the draft bill currently states that the impact will start to feed through starting next year. So in terms of the corporate income tax, we do have to recognize and account for the deferred tax asset. So starting the end of this year, we will be reflecting that on a post-tax line item. And in terms of the educational tax, it will be reflected on a pretax profit, and it will be a minus driver to the pretax profit. And if the current bill as is, is adopted. Because at this point, we do not have the specific tax rate that has been determined, we can't provide any specific number. But it is true that this tax item is going to increase the future cost regarding the long-term insurance. So it does work as a negative factor on CSM. And also that's going to drive down the total CSM volume, basically driving down on the CSM amortization. And hence, it will have an impact on the net profit line item. So once again, because we do not know as to the percent of increase of this tax item, we cannot, at this point, fully be sure about the actual amount of the impact, but we can definitely tell you that there will be a sizable impact. Now responding to the question about the loss ratio, if you compare to the first half of the preceding year, there's been a 7.5% increase. And out of this impact, the medical indemnities account for more than 50%. If you break this down by different coverage, if you look at the loss ratio for the medical indemnities, we've seen a steeper increase in the insurance claims that have been filed compared to what we had expected. And hence, that had an impact of driving up the living benefit-related claims such as diagnostics as well as surgical treatment. And also, if you look at the -- for instance, the debt covers as well as property-related covers, where usually in a traditional basis, we've seen loss ratio profile to be quite good because of some of the external events that happened in the first quarter and large-scale accidents that actually broke out due to these events, the loss ratio from these types of covers have also gone up. So in terms of our indemnity products, we are strengthening a rigorous review and check into any claims that are considered to be either false or overstated, and we continue on with many different measures to minimize the amount of claims that actually leak out. And also in response to changes in the guidelines, we are planning to revisit the types of protection and coverage that we offer. You are correct that the overall loss ratio improvement trend seems to have slowed, and that is because the overall loss ratio from our in-force contracts have been going up. However, we will do our best to make sure that we achieve downward stabilization in terms of our loss ratio metrics.

[Interpreted] The following question will be presented by Jaewoong Won from HSBC.

[Interpreted] I have 2 questions that I would like to ask. First is, if you look at your second quarter new CSM multiple, it did go up. However, it is still not at the level of what we've seen last year at 15x. So I would like to know as to -- as we move into the second half of the year, where you think the multiple will be? Would it be possible for you to further drive up that CSM multiple? And if so, what are the key factors that will enable that? And at this point, the authorities are talking about making adjustments to the maturity of the health care insurances. And then I think it will be more difficult for you to further increase the drive up the CSM multiple. If that assumption is correct, then if we look at the amount of new business that you've written in the first half of the year, it may not be that easy for you to achieve the KRW 3 trillion target that you have for the end of the year. So I would like to gain an insight on this question. And second question is that the loss ratio from auto insurance in Q2 was not good. And due to heavy rain impact in Q3, I believe that the loss ratio would not be able to improve significantly. So if you could tell us as to the amount of damage that you incurred from such heavy rain and flooding, that would be helpful -- and that will be helpful so that we could make appropriate assumptions.