Samsung Fire & Marine Insurance Co., Ltd. ($A000810)

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 First Quarter of Fiscal Year 2026 Earnings Results.

[Interpreted] Good morning. I am Helen Park, Head of IR at Samsung Fire & Marine Insurance. I'd like to thank you all for taking the time to participate in today's 2026 First Quarter Earnings Results Presentation. Today's session will begin with an overview of the fiscal year 2026 first quarter business performance, followed by a Q&A session. The session is expected to last approximately 1 hour. I will now turn it over to the CFO for the presentation.

[Interpreted] Good morning. I am CFO, Koo Young Min. Let me start the briefing on the first quarter 2026 earnings results of Samsung Fire & Marine Insurance. In the first quarter, we saw profit-centered growth strategy, which we pushed for proactively across all business lines starting to translate into earnings, driving an outperformance against the company's target. Insurance profit showed improvement year-over-year, increasing 5% and reporting KRW 551.3 billion, while investment profit sustained steep uptrend, expanding 24.4% year-over-year, reaching KRW 362.4 billion. As such, Q1 consolidated pretax profit came in at KRW 857.7 billion with net profit attributable to majority interest recording KRW 634.7 billion, which is up 4.4% year-over-year, displaying a standout performance in the industry. Now moving on to key results by business line. For the long-term insurance, underpinned by strategic shift made from the second half of last year towards strengthening the bottom line, we focused on fundamentals across product, underwriting and channel operations. As a result, monthly new business for protection line reported KRW 14.8 billion, down 24.9% year-over-year, while CSM multiple improved 2.3x year-on-year, reporting 14.2x. CSM volume also expanded KRW 301.5 billion year-to-date, reporting KRW 14,469.2 trillion. Insurance profit recorded KRW 440 billion, up 4.9% year-on-year on solid CSM amortization and improved claims variance. In terms of efficiency metrics, risk loss ratio, which showed deteriorating trends last year, fell 1 percentage point Q-on-Q, shifting the trend towards improvement, while 25th month and 37th month persistency ratios increased 7.1 percentage points and 5 percentage points year-on-year, displaying a sizable uptrend. In Q1, while maintaining our stance towards gaining fundamental resilience and with a focus on profitability despite intensifying competition, long-term insurance lines saw meaningful improvement in efficiency as shown through the persistency ratio. And we achieved distinctive results in the industry, i.e., stable profit and higher CSM quality. Moving into the second quarter, rather than growing the volume, we will continue to pivot on profit-driven management, fundamental improvement in resilience and gaining future value. At the same time, we'll expand high-quality new business and improve efficiency indicators to drive stable CSM, quality-centric growth and to fortify our core competitiveness. Underpinned by these efforts, we will achieve gradual improvement in insurance profit and sustain this distinctive performance trend. Next is auto insurance. Based on our firm stance taken towards profitability, instead of boosting revenue, we focused on enhancing the quality of portfolio around high-quality policies, which drove auto insurance revenue of KRW 1,363.6 billion, marginally down 1% year-on-year. Despite some impact from premium hike in February due to built-up effect of rate cuts over the past 4 years and heavy snowfall at the start of the year, loss per claim went up. Amid prolonged cycle of worsening loss ratio, we focused on securing steady profit stream underpinned by a reasonable cost base and on enhancing the quality of the portfolio and thus was able to defend our Q1 insurance loss at KRW 9.6 billion. Through continuous portfolio enhancements and premium hikes, earned premium per coverage also made a Q-over-Q turnaround. In Q2, through differentiated upselling strategies, building product operational framework and strengthening execution capabilities on site and through expense optimization, we will endeavor to build a profit-generating business structure that can withstand the market pressures. Next is on P&C business. Underpinned by concurrent revenue growth from domestic and global business, insurance revenue was KRW 449.1 billion, up 9.6% year-over-year. With more granular rate scheme for low-margin sectors applied and decline in large loss events, loss ratio reported 53.6%, which is a sizable improvement of 9.9 percentage points year-over-year. Thus, insurance profit recorded KRW 104.7 billion, expanding KRW 55.1 billion year-over-year. In Q2, underpinned by stronger pricing policy and volatility management, we will seek to enhance profitability. And through growth strategy pivoting on the specialty line and diversifying overseas insurance and geographic markets, we will continue to expand levers for growth in the global market. At the same time, we will manage domestic and overseas portfolio in balance and fortify stable foundation for profit generation. Next is asset management. Despite greater financial market volatility at the beginning of the year, in order to enhance book yield, we proactively shifted the bond portfolio and drove efficiency gains, which supported interest and dividend income expansion. As a result, Q1 investment yield recorded 3.68% with AUM-based investment profit of KRW 853.7 billion, up 15.4% year-over-year, sustaining high rate of growth. Moving into Q2, SFMI will rigorously manage asset quality of domestic and overseas real estate and retail loans while securing high-yield interest-paying assets and building a high-return portfolio around private equity so as to counter market volatility, underpinned by a balance between stability and profit generation as we broaden the basis for sustainable investment returns. Against operational backdrop where industry as a whole is feeling the pressure on profit with uncertainties stemming from fierce market competition and rise in claims, SFMI has made a proactive shift to management, pivoting on robust and consistent profitability, driving stronger core competitiveness at the company level. And so insurance profit has shifted back to growth in Q1 of 2026 and investment profit also continued to expand as well. We also expect higher equity method gains from additional investments made into Canopius, expanding the basis for future earnings. In Q2, market we expect will continue to weigh down on us, but we believe the speed and extent of recovery will vary and are contingent on profit management capabilities and capital readiness. Since SFMI has been preemptive with its profit-centric strategy, we expect to be able to sustain this robust growth trend underpinned by relatively stable earnings capacity and capital strength. Furthermore, SFMI has been consistently implementing its value plan to enhance shareholder value and is considering various different options for capital allocation. Through capital structure optimization and ROE enhancement, we will work towards shareholder value enhancement and have our distinctive value be better recognized by the market. In the second quarter, Samsung Fire & Marine Insurance will innovate all of its business domains to differentiate our core fundamentals. And by taking on the bold challenge, we lay down a new foundation for growth to make 2026 a year of meaningful growth and shareholder value enhancement. Thank you.

[Interpreted] That concludes the overview of our financial performance. We will 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 Seung-Gun Kang from KB Securities.

[Interpreted] I would like to ask you 2 questions this morning. First one has to do with the timing that you're currently foreseeing with regards to turnaround and the loss ratio trend. Now despite the fact that there was a premium hike in February for auto insurance, we are seeing certain delays in terms of the guidelines and regulation on how to provide or how to treat the minor injury accidents. So there has been that delay in terms of the guidance. The second is also for the long-term insurance, although there has been an improvement on the experience variance, we still have seen on a year-over-year basis increases in loss ratio. So from that backdrop, I'd like to understand as to when the company is foreseeing a turnaround in loss ratio. Second is on your capital plan and shareholder return plan. And I know that there are many aspects that are still yet to be determined, but we are looking forward to a special dividend payout by Samsung Electronics in 2027. With that being said, that brings quite a bit of variability to your payout ratio and your whole capital planning or your shareholder return planning may become a little unclear with -- because of that factor. So my question is this, where does the company place more weight? Do you foresee that your payout ratio will start to increase as we go into the future? Or does the company feel that gradually expanding the absolute size of the DPS is more important?

[Interpreted] Yes, responding to your question, I am [ Kwon Young Jib ], Head of Automobile Insurance Strategy team. So as we've mentioned previously, starting the second half of last year, we've been streamlining our discount riders. And as was disclosed, there was an increase in the premium, and we have adopted more customer-by-customer segmentation strategy, which is helping to support our profitability. And as a result, as mentioned during the opening presentation, starting the second half of last year, we've seen earned premium per vehicle start to uptrend. And absent any significant natural disasters in the month of January and February, although we have not yet disclosed these figures yet, if you look at March numbers and April numbers, our profit as well as loss ratio is within the domain of what we had previously planned. And also, as you have mentioned, the government or the authorities has not yet implemented this new guideline on the minor injury patients. But I understand that at this point, the authorities are engaging in discussions with regards to this regulation. In light of the current trend that we are seeing at SFMI in terms of our auto insurance on the earned premium per vehicle, and if we assume that these new guidelines start to kick in from the second half of the year, we believe that on a year-over-year basis, auto insurance loss ratio, we expect will start to turn around.

[Interpreted] Responding also to your question, I am [ Chu Gin Man ], Head of Long-term Insurance Strategy team. So the company since 2025 had taken on a margin or profitability-centric strategy. So we decided to suspend selling high-risk coverages and have streamlined our portfolio, pivoting on high-margin products. As such, we have put in our efficiency-related efforts. At the same time, we've been able to improve on our loss ratio through continuous expansion of high-quality coverages as well as acquisition of high-quality new business that's supported by fair and reasonable cost base. As for 2026, based upon the continuous efforts that we are putting in to attract high-quality coverages as well as to do away with abusive claim-related behaviors, we expect the loss ratio trend to stabilize.

[Interpreted] Responding to your third question, I am CFO, Koo Young Min. So in terms of the value plan that we had previously shared, basically, as is mentioned under that shareholder value enhancement plan, there is no change to our previous planning of expanding our payout ratio to 50% by FY 2028. And we -- that uptrend is quite clear, as you can see from the figures. And also with regards to the proceeds from the sale of the Samsung Electronics shares, we've received repeated questions on whether that forms part of distributable or what can be distributed or it is included in the dividend payout. And once again, yes, it is going to be included in the dividend as well. And so after this year, we will be able to see the impact as we go forward on the dividend.

[Interpreted] So this is [indiscernible], I'm Head of Corporate Management Support team. Just to elaborate, just following up on what our CFO had said, our payout ratio is progressively going to uptrend. That basically is our key principle. And as long as our earnings and our profit size continuously goes up, our payout ratio is also going to uptrend. And that naturally is going to lead to higher DPS as well. So I think this is not an issue of which aspect we're going to place more emphasis on. For the benefit of shareholder return, we are going to be mindful of continuous growth as well as progressively expanding the payout ratio as well as the DPS size as well. So considering all of those factors, we will be reflecting and incorporating that in our dividend payout plan.

[Interpreted] The following question will be presented by MW Kim from JPMorgan Securities.

[Interpreted] I am Kim Myung Wook from JPMorgan. I'd like to ask you 2 questions. First, relating to your long-term insurance. You've mentioned that your strategy pivots on profitability and profit, and I see that, that had translated into improvement in long-term insurance-related metrics and indicators. So my question is this, if you continue on with this strategy, I would like to know that for your new business CSM, what would be the extent of year-over-year decline? And would also like to know what effect and impact this is going to have on your long-term insurance risk loss ratio that if you give us that color, it will be helpful for us to make projection as to how that risk loss ratio moves going forward because you do share with us the first month risk loss ratio and the 12 cycle or 12-month loss ratio. But based upon the risk premium, I would think that over the past year, the share of the new business that came in must be smaller compared to the total risk premium that you are currently accruing. So I would like to know as to the size of the new business CSM as well as the risk loss ratio efficiency. Second question is in 2026, if we look at the movement of the solvency ratios, aside from the market risk, we see that the required capital is not actually going up. And with earnings and profit continuously increasing, it will actually drive up the available capital. So what would be your KICS target at the end of the year? Do you still consider your 220% target solvency ratio to be a reasonable target? And if you can provide some details as to how you would be making use of the excess capital that's generated in the second half of the 2026, that would also be quite helpful.

[Interpreted] This is [ Chu Gin Man ]. I'm the Head of Long-term Insurance Strategy team responding to your question. So in Q1 of 2026, despite the fact that the new business CSM volume actually downsized, there has been an improvement on quality. We focused on high-margin products, focusing particularly on My Fit product offerings and expanding the age term products, which helped improve our portfolio. So we were able to drive up CSM multiple, which made up for that decline in new business CSM. Also moving into the second quarter of 2026, we are going to continuously implement our management strategy that really focuses on generating future value. We will continue to expand based upon high-quality new business acquisition, and that will help us stabilize the new business CSM. So for this year, our new business CSM is expected to be flat year-over-year. And also the risk premium portion of the new business is not too small. It is at around 10%. So the high-quality new business that we acquired since 2025, therefore, we expect will also help with stabilizing our loss ratio.

[Interpreted] Responding to your second question, I am [ Eon Bok ], Head of RM team. Now regarding the year-end K-ICS ratio, of course, it will change depending on how the interest rate and the stock prices move. But as of today, our expectation is that it will be at around 260%. As you've mentioned, yes, the available capital has gone up, but through alternative investment and our global overseas investment, we are using our required capital. So these numbers may be subject to certain changes.

[Interpreted] The following question will be presented by Sinyoung Park from Goldman Sachs.

[Interpreted] I'm Park Sinyoung from Goldman Sachs. First question relates to the time line of your value plan. Based upon the announcement on value plan that you've made end of January, since that point in time, we haven't really seen a strong commitment really play out in real life in terms of improvement of that value-up or the shareholder return-related actions. And also considering that the holdings that you have of [ SEC ], Samsung Electronics, the value had really gone up, I would think that all of these aspects will -- is expected to bring down your ROE. Hence, for you, I think it's #1 priority for the company to really try to drive up capital efficiency. To be within your ROE target of 11% to 13%, I would think that you either accelerate the time line of achieving that 50% payout ratio target or actively make use of that excess capital. So do you -- just like other Korean commercial banks in Korea, do you have plans to accelerate the time line? Or -- and also when you talk about your excess capital plans, you haven't really mentioned how you would use your preferred equities. So if you could provide a little more color, that would be quite helpful. Second is in terms of the size of the CSM adjustment, this quarter, it was very small. Is it due to one-off reasons? Or is it because of qualitative growth, which helped you improve on your persistency ratio? Or is it because of your conservative assumption that you took compared to your peer competitors?

[Interpreted] Responding to your first question, I am CFO, Koo Young Min. So yes, the ROE level is around 11% as per our mid- to longer-term value plan. And at this point, we are putting an effort to really maximize the efficiency of our capital use. For us, gaining growth engine for future growth is important, and we place foremost priority on further enhancing the shareholder value. So at this point, internally, we're making continuous reviews and looking at different options to actually achieve that maximize shareholder value. It's quite difficult to say at this point because we have yet to make our plans much more concrete. So once the details are laid out, we will make sure that we come back to you and share that with you. And in that process, we will fully incorporate and -- incorporate the feedback and the messages that you've shared with us.

[Interpreted] This is [ Chu Gin Man ] again, Head of Long-term Insurance Strategy. So Q1 CSM adjustment basically with an upward trend in persistency ratio for the protection type as well as improvement in RA. There was an increase of KRW 0.11 trillion year-over-year. Now going forward, rather than focusing on growing our top line volume, we're going to focus on strengthening the fundamentals of our core, continuously acquiring high-quality new businesses so that we can continuously improve on our persistency ratio to make sure that we can stabilize CSM adjustment that stems from changes in the assumption. And in that process, we will seek to grow the CSM volume.

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

[Interpreted] Thank you for good results despite very difficult operational backdrop. And regarding the shareholder return, there were good questions asked previously. So I'm okay with that. I would like to ask 2 questions on the fundamentals. With the adoption of the vehicle 5-day rotation system, I would like to know what impact that had on your loss ratio. Is it actually selling well? That's the first question. And compared to your mileage auto insurance, I mean, is -- are people more drawn to it or less drawn to it compared to that product? And also because of such rotation system, I would think that, that may have some impact in delaying your loss ratio improvement trajectory. Is that the case? Second question is, I would like to know as to what impact the fifth-generation medical indemnity products will have on your company's CSM. I would just assume that it will actually have an impact of bringing down the CSM margin. I mean first, is that correct? And also, however, from a longer-term perspective, it may be positive in terms of experience variance and on your liability side. So short term, it may have negative impact, but long-term, positive impact. Is that correct understanding? So -- and also, is it better for you to sell more such product?

[Interpreted] Responding to your first question on auto insurance, I am [ Kwon Young Jib ], Head of Automobile Insurance Strategy. Now regarding the 5-day rotational system, I know that in the news article that this effect will have a retroactive effect as of April 1. Now this is providing 2% discount to people who participate in this program. But in actuality, we've been receiving the application starting this week. So it's too early to say as to how many policyholders are actually taking out or applying for this. So this 5-day vehicle rotational program, yes, it would provide 2% discount. But with the adoption of this program, it will have impact on lowering the mileage traveled as well as lowering the accident rate. So all in all, in practical purposes, I would think that the negative impact that it will have on our P&L will not be big at all.

[Interpreted] Responding to your second question, I am [ Kwon Gi Sun ], Head of Long-term Product Development team. So with regards to the fifth-generation medical indemnities, the co-payment share for noncritical illnesses are going to go up. And also the nonbenefit items, which is quite subject to abuse will also be eliminated. So compared to the fourth-generation medical indemnities, both the claims and the premium will go down by 30%. Now having said that, the fifth generation, therefore, we believe we're going to start to see stabilization of the increases in the amount of loss claims with regards to the big loss claims. However, already the medical indemnity loss ratio is above 100% at this time. So the short-term impact as to the improving impact from fifth generation would have to be closely monitored. But from a mid- to longer-term perspective, we are looking forward to stabilization of the loss ratio trend. And also from the consumer's perspective, they will also benefit from more attractive premium. Now in terms of the detailed levers that impact the CSM, we would have to closely monitor how much of our consumers and users are going to subscribe to the fifth generation medical indemnity. There will be a mixed impact from fifth generation and that it will help in terms of stabilizing the loss claims. On the other side, we have to think about the buyback effect that's going to start from month of November. I understand the authorities are currently thinking of ways to soft-land that program come November. So we would have to closely monitor how things play out.

[Interpreted] The following question will be presented by Byung Gun Lee from DB Securities.

[Interpreted] If you could go to Page 6, for your auto insurance, thank you for providing us with more data compared to the previous year. You are providing us with an earned premium per vehicle as well as the loss per claim, which is quite helpful because you did use to provide it up until 2022. But after that point in time, you just share with us to the sensitivity and the impact. But these 2 indicators are quite important because we've been going through a certain timing where there was quite a bit of a change, and we need to be able to have access to this status for us to be able to verify and check the reasonableness of the company's estimate. So I ask for the provision of such data going forward. Second question is that you did seem to have used quite a bit of new acquisition cost quite significantly. And also since your strategy shifts and is pivoted based upon high-margin products, I would think that the situation would continue onwards. And also considering the changes in the regulation in July, I would like to know whether going forward, the new acquisition cost spend is going to be less as we go into the future. I ask this question because it's an element that is required for us to understand and project on the size of your surrender value reserve. And when we ask other companies in the industry, the second half surrender reserve trend is also going to be quite flat. So it is from that aspect or that's the background as to this question that I'm asking.

[Interpreted] This is [ Kwon Young Jib ] from Head of Auto Insurance Strategy responding to your first question. Okay. So if you look at Q1 2026, earned premium per vehicle was KRW 152,500. Previous year, it was at around KRW 156,000. But coming into the first quarter, we've seen the trajectory upturn. And in Q2, Q3, Q4 going forward, our internal assessment is that we will be able to increase it on a monthly basis by around KRW 2,000 to KRW 3,000. So to sum that up on a year-over-year basis, starting the second quarter, we will be able to see an upturn.

[Interpreted] Responding to the second question, I am [ Chu Gin Man ], Head of Long-term Insurance Strategy. Starting July, the 1,200% rule for the initial new business, that rule for the GA -- the agent is also going to expand and apply to the GAs as well. And on top of that, across the industry, all of the companies are putting in efforts to improve on their CSM multiple. So we believe that when it comes to new acquisition cost compared to the first half, we will be able to expect a lower decline in the new cost.

[Interpreted] This is [indiscernible], I'm the Appointed Actuary. I took your question to be a voice of concern regarding the surrender value reserve. In terms of the changes in the guidances and guidelines by the authorities on the selling expenses, we do not think that this will have an immediate impact on the numbers that we see for this year. But going forward, about maybe 4 to 5 years down the road, we believe that it will have a downward effect.

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

[Interpreted] My first question relates to the experience variance. I believe that the improvement in experience variance was because of a very steep increase or adjustment made on the expected claims, not on the actual claims that's been paid. So I think what this improvement shows is it's actually a sacrifice of future profit that the company would be gaining. And considering the fact that the business days were also not small in Q1 as was the case in Q4, I would like to know as to what the actual claim was, not the estimated or projected claim figure because that will be quite helpful for us to make future projections. Second is on the dividend question, and I think that you've answered it quite a bit. But the reason why we're continuously asking this question is that it's only natural that the gain from the proceeds from the sales of the Samsung Electronics shares be part of the dividend payout. And for the company to be continuously progressively expanding the payout ratio and DPS, I think, is the basic premise. It is something that is already given. So what we wanted to know was that if there is nonrecurring or any one-off factor that could be part of that dividend support, would you be willing to -- or do you have certain hesitation in including that in your distributable income -- if you have a hesitation, why -- what would be the reason because you have enough amount of excess capital? Third is a follow-up question on the surrender value reserve. Just to check whether my understanding is correct because I know -- the reason why you are saying that the impact will actually be shown over the 4- to 5-year period. Why would that delayed impact?

[Interpreted] I am [ Chu Gin Man ], Head of Long-term Insurance Strategy. So in terms of the claims experience or the claims variance, it was KRW 2.4 billion, which is an increase of KRW 25.8 billion. Well, as you said, because of the changes in the assumption at the end of last year, the expected claims, the loss claims has gone up. That's one factor. But also we've seen some improvement quite significant on the claims side with regards to the living coverage. Especially on a Q-on-Q basis, we've seen an experience variance of about KRW 120 billion. And mostly, there were multiple levers that impacted it, but particularly, we've seen quite salient improvement on the claims -- loss claims from the living coverage.

[Interpreted] Responding to your second question, I am [indiscernible], Head of Corporate Management Support. Now on dividends regarding the sales proceeds from Samsung Electronics shares and the special dividends that we are receiving, that will form the part of distributable income that will be used for dividend payout. In terms of to what extent that will be, we will go through an internal discussion. And once that is finalized and concluded, we will come back to you and communicate with you the details. Now the distributable income as well as use of the excess capital for investment purposes. Now those are 2 separate issues. So I can tell you that we will not be hesitant on making the dividend payout because of a certain investment that is required.

[Interpreted] This is [indiscernible], the Appointed Actuary. The answer that I provided also includes the effect of the evenly spread allotment payment as well. Now the factors that impact the size of the surrender reserve is the size of the revenue and sales and also with regards to the policies that's been sold on new acquisition costs, when and how and the payment schedule with regards to the payment relating to those new businesses. So the amount that's going to be reserved for this year actually comes from insurance contracts that were sold the previous year and 2 years from now -- 2 years ago. And so these commissions that were spent for those other previously sold policies are now being reflected and being used reflected on the reserve. So that is -- from that perspective, why the other peers or other companies have said that for this year, the impact is not that big. And also depending on the distribution channel, there is a commission that is actually paid out, not just in year 1, but year 2 and year 3 as well. So that is why I've said that the impact is gradually going to also be reflected as we go forward.

[Interpreted] Since there are no further questions, we'll now conclude the Q&A session. Once again, thank you for attending today's presentation. This concludes our fiscal year 2026 First Quarter Earnings Results presentation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]