Samsung Life Insurance Co., Ltd. (A032830) Earnings Call Transcript & Summary

Good afternoon, everyone. This is [ In-Hwan Kim ] Head of Investor Relations. Thank you for joining us today for Samsung Life's 2021 Annual Earnings Presentation. Today's call is scheduled for 1 hour and 30 minutes, starting with the earnings presentation delivered by our CFO, Mr. [ San Kim ], and followed by your questions, which will be addressed by the members of our management team present here today. Please note that the figures in this presentation may be revised during the auditing process and any forward-looking statements, including the earnings outlook contained in today's conference call, are subject to change depending on both domestic and overseas market conditions and operating environment. Let me now hand over the presentation to our CFO, Mr. San Kim.

Good morning. This is CFO, San Kim. Thank you all, our investors and analysts participating in today's earnings presentation. Let me now present to you the main business results in 2021 and our business strategies in 2022. First is on the 2021 business highlights. Throughout 2021, a tough business environment persisted with prolonged COVID prices and volatile global financial market. Despite such difficulties, our net profit increased by 16% to reach KRW 1.5 trillion, while creating value of new business worth KRW 1.4 trillion, which is our future profit index. Despite regulation strengthening, we maintained top notch level capital adequacy in the industry as well. Also, the company completed all necessary preparations for IFRS 17 settlement starting this year. We also proactively dealt with changes in insurance sales environment accelerated by COVID by transforming the whole value chain into digital and contactless settings. With our goals to grow asset management business as future core profit engine, we acquired 25% of U.K.-based and real estate-focused Savills IM last May in 2021. We plan to continue expanding alternative asset investment to enhance investment yield. Next is detailed business results in 2021. First is on net profit. Looking at net profit per 3 main components, insurance profit decreased by 22.8% to reach KRW 1.2 trillion, while investing investment profit jumped to reach KRW 1.1 trillion by special dividend income from Samsung Electronics. Due to the increase in investment profit, net profit achieved KRW 1.5 trillion, which is the largest number since IPO despite provisioning of KRW 300 billion for e immediate annuity. Let me look more closely into our insurance profit. Risk margin decreased year-on-year to reach KRW 630 billion in 2021. This is because people who stopped visiting hospital in the early stages of COVID crisis in 2020, now started to visit hospitals as often as pre-COVID level in 2021, which led to an increase in loss ratio to reach 85.8%. The loss ratio is similar to the pre-COVID level in 2019. We are watching recent loss rate trends closely and strive to stabilize risk margin by securing 3% level increase in risk premium and minimizing further [ launch ] claims. Loading margin decreased by KRW 140 billion to reach KRW 659 billion. As shown in the graph below, new business expense continued to incur increasing magnitude in recent years, together with sales increase in health products because the current regulation allows such expense to be deferred only up to a certain amount. Our new policy launched in second half of 2020 to offer extra commission to recruit high-quality FC rookies case also reduced our loading margin expense of maintenance of strong sales force. Considering such expenses, our loading margin is maintained at a stable level. Our efforts to expand our market share in high-margin health product market and improve over efficiency by securing high-quality FCs are expected to lead to stable increase in our net profit under the new accounting system. Next is investment profit. As mentioned earlier, the Samsung Electronics special dividend income of KRW 800 billion was the main reason behind the jump in investment profit. Also, the equity method and consolidated income from our high-quality financial affiliates like Samsung Securities and Samsung Card has increased by a large amount year-on-year to partially offset decrease in variable guarantee option P&L and disposal gain. Next is our new business results. The value of new business increased by 6.7% to record [ KRW 1.406 trillion ], while new business margin improving by 4 point 4 percentage points to reach 52%. As shown in the graph on the right side, the company has been putting efforts to strengthen product competitiveness and improved contactless sales channel in the midst of overall market contraction to obtain modest achievement by increasing new business sales in high-margin production -- protection products like health and CI compared to last year. The company plans to maintain health proportion at around 50% this year and continue to grow value of new business by providing hybrid whole life products with features of both protection of whole life and health protection plus leading fund functions. Next is persistency rate. The company improved both 13th and 25th monthly persistency rate. As shown on the graph on the right side, the 25-month persistency rate, which is the long-term persistency measure improved for both protection and annuity products. In event of IFRS 17 adoption, the company plans to strengthen company-wide persistency management system. With such efforts, the company expects the long-term persistency rate improved further compared to the current level. Next is investment strategy. The invested asset as of 2021 year-end is KRW 250 trillion with interest-earning assets, such as bond and loan comprising 72%, backed by superior capital adequacy compared to industry peers, the company has been expanding investment in alternative assets, focusing on domestic and overseas real estate and infrastructure financing enhancing investment yield. The company targets to increase the proportion of the alternative investments within the invested assets up to 15 -- 15%. Next is new investment yield and negative margin backed by increasing the market interest rate, the company's new investment yield increased since second half of 2021 to enter into a 3% level by the end of the year. Considering domestic and overseas interest rate environment and its investment strategy to increase high-margin alternative investments, we expect that the upward trend would continue throughout the year. The negative spread recorded minus 104 basis points as of 2021 year-end, backed by the favorable interest rate environment, we expect it to stay at the current level this year as well. Next is EV results. The company's EV as of 2021 year-end increased by KRW 2.2 trillion from last year to reach KRW 45.8 trillion. Although ANW decrease to KRW 37 trillion due to a decrease in bond valuation gain. VIF increased to KRW 8.7 trillion due to new business sales and interest rate increase. Please refer to the table on the right side for the assumptions used in EV calculation. The detailed information regarding EV movement and sensitivity is providing the company presentation materials. Next is capital adequacy. First, the RBC ratio decreased by 48 percentage points year-on-year due to decrease in asset values and gains followed by increase in interest rate. Still, the company maintains a differentiated level of capital adequacy compared to industry peers. Also, we anticipate only limited impacts from increasing liability duration that is expect to continue until September this year. The company's LAT surplus recorded KRW 19 trillion as of 2021 year-end. We expect to secure in LAT surplus till the transition to IFRS 17 by the end of the year. Next is our capital management policy. As disclosed last January, the dividend per share for fiscal year 2021 is KRW 3000 with 36.7% payout ratio applied. We remain our commitment to our midterm dividend policy where we incrementally increased payout ratio within 50%. We continue to do our best to offer stable DPS with solid insurance profit and timely realization of disposal gain in the midst of heightened financial volatility. Next is the company's main strategy for 2022. First is on IFRS 17 adoption. As shown in the graph, the company can secure CSM after offsetting future loss from fixed rate contracts with future profits from floating rate contracts. This enables our earnings base to change in such a way that negative spread from high fixed rate contracts no long will affect negatively our P&L while minimizing its burden on our capital. Currently, retroactive application of IFRS 17 is under discussion and hence the exact size capital may change. In a nutshell, after transition to IFRS 17, earnings can be more stably manageable relative to the current accounting system and improvement in investment yield realized directly in increasing earnings. Next is IFRS 17 adoption schedule. Related regulation as well as main accounting policies such as retroactive application period are to be determined in the first half of this year. As aforementioned, upon transition to IFRS 17, the company expects its earnings stream to be steadily increasing in the mid- to long term with elevated investment profit and increasing insurance profits coming from CSM amortization from both initial and new business contracts. As soon as the financial impact from the IFRS 17 transition are settled, we will expand our communication with investors. Next is on Health Asset project. To cope with domestic market contraction, the company as a leading company in Korean life insurance industry launches the Health Asset project in full scale. The Health Asset project is to expands life insurance business from traditional after death insurance payment to pre-care of policyholders health and management of one senior financial assets such as annuity. The company prepared the campaign in the midst of rapidly changing business environment where COVID crisis propels growth of digital and contactless sales channel, regulation on new business such as healthcare ease and the IFRS 17 system is newly adopted. As a starting point, the company prepares to launch of a healthcare application coming March and plans to launch innovative products and services, promoting policyholders health using linked smartwatch. Next is on the 2021 results and 2022 strategies under the 2030 long-term strategy that we established in 2020. To escape from the current accounting competition heavily relying on domestic insurance business, the company expands its asset management business to grow it as another core profit engine enhances the value of the insurance business while establishing sustainable management system, carry out digital transformation drive the value chain and continue developing new business opportunities such as healthcare and Samsung Financials combined platform. Let me address the anticipated results of the strategy in each area. First is on asset management. The company acquired 100% shares of Samsung Asset Management and Samsung SRA management in the past and by its continued endeavor to creating synergies and stable profits to now enjoy economic benefits far surpassing the acquisition cost to expand or into overseas asset management, the company equity invested in U.K.-based Savills Investment Management last May and has been looking for additional investment opportunity in overseas asset management this year. The company plans to propel its portfolio diversification by expanding investment in alternative assets, real estate and PE investment with collaboration with Samsung Asset Management and Samsung SRA, I'm sorry. In addition, the company has been upgrading its ALM strategy by utilizing [ boon ] forward contracts to convert its superiority in capital adequacy into investment yield enhancement. Next is customer focused management and ESG. Last year, the company actively expanded ESG investment and plans to strengthen its responsible investment by increasing the investment amount by KRW 1.5 trillion every year until 2030. In addition, the company actively engages in social campaign to protect socially underprivileged contribute building social safety net, while participating in group-wide CSR activities. Lastly, is on digitalization. Last year, the company hugely improved convenience of insurance transaction drove the whole value chain, including subscription, maintenance and payments by digital transformation. Under the COVID crisis, the company propelled mobilization of sales process to convert in-person sales channel into contactless one, resulting in the top-notch level functionality and usage in the industry. Also, the company improved the digital processing rate, which is the rate at which customers self-process insurance-related tasks using mobile app or website to reach 38% at the end of 2021. We plan to continue strengthening our contactless customer service competitiveness. This year is an important year to lay the groundwork to succeed in digital transformation. Together with the aforementioned contractual sales process and service provision, the company prepares to launch a combined financial platform in the first half of this year under collaboration with other Samsung financial affiliates. On the platform, customers will be offered seamless services across all 4 Samsung financial companies. Also, we plan to establish another platform where we can provide customers with innovative products and services in a continuous manner. This concludes our 2021 annual earnings presentation. Please refer to the aforementioned accompanied materials for our fourth quarter results. As things get clearer regarding IFRS 17 and other long-term strategy, we will actively expand our communication with the investors to clear uncertainties and enhance undervalued corporate value. Thank you again all for participating in our earnings presentation. We politely ask for your continued attention for Samsung Life. Thank you.

[Operator Instructions] The first question will be provided by Do Ha Kim from Hanwha Investment & Securities.

Let me ask a detailed question followed by more. In terms of your general accounts, it does seem that you have seen a decline that would have had a big effect. And then regarding your guidance on [indiscernible], you have referred a number of times that you intend to gradually increase it up to 50% of recurring profits. So we interpret that to me that you will not be increasing it to 50% immediately next year, but gradually increasing. However, if you look at the payout ratio for last year, it was 36.7% or so, which is only 1 percentage point higher versus the prior year. So it is hard to grasp or forecast exactly what the dividend payout will likely look like? I understand the dividend payments that you receive from the entire group are included in the pool of proceeds that can go towards dividend payments. So is it fair to say that you will proceed with a gradual increase going forward in your payout? If you could provide more detailed guidance, we would appreciate it.

So as you can see from the numbers on the slides, it went from KRW 70 billion or so down to KRW 40 billion to KRW 50 billion. Research in product types may be down further. But for a very long time, our policy stands as far as new business was concerned, was always entered around protection, in particular with products with high margin profile. And so the major driver in terms of our products and new business sales was, of course, the dedicated exclusive channel, which focused mostly on selling protection. And so a key indicator was first month monthly premium in protection as a core part of our product portfolio. So the savings type products that you mentioned are sold through the bancassurance, which are the nonexclusive channels. So in terms of the decline in savings product APE, in terms of the pure number, it may appear significant at around 50%. But upon our analysis, we have not found any particular one-off factor affecting the fourth quarter in particular, and no reason for concern in terms of the overall profitability. Now regarding update on the lapse trends, I think maybe we can follow up with you in written form through the IR team.

Yes, this is the CFO. Let me take your question regarding the dividend policy. So as you know, we have increased our payout ratio slightly, but we do understand that in part, it may not be up to the expectations of our investors. And we did give a considerable amount of thought in determining the exact payout ratio. As we have said many times, our entire earnings, of course, are available to be paid out as dividends as part of the recurring earnings pool. For last year, a big part of our overall earnings actually came from special dividend payments from Samsung Electronics, also other consolidated or equity method gains from other subsidiaries within the group. But in determining the exact payout, we felt that it was important to show the investors that we intend to move steadily upwards, we wanted to show that kind of upward low being mid- to long-term graph, if you will. That is why we considered recurring insurance profit, also our investment returns more on a normalized basis. So in the interest of stability is mostly how we came up with the final range. And so in terms of the future trajectory of payouts going forward, we have to be mindful that for an insurance company, our earnings are actually subject to significant fluctuation depending on our insurance profit, also short-term factors affecting market conditions. So we will take all of those factors into consideration, while as we have said many times, improving the mid- to long-term dividend payout trends up to 50%. And so to summarize again, this year's decision was actually made on the premise that we will gradually improve our payout going forward, although it did not increase in the short term in a major increment, we intend to continue to work hard to maintain that upward trend.

Yes. So I only asked about the decline in the savings APE because it seems quite significant to the extent that premium income in your general accounts actually was going back towards some were near 2010 levels or so.

So I hope for greater information follow-up from the IR team. And I think you may need to communicate more tightly with the market regarding your mid- to long term in terms of the upward trend of the dividend payouts.

Yes. So I would like to thank you first for delivering very strong performance despite the difficult business environment. And I thank you for your explanation earlier on the IFRS transition. I would like to I do understand that since the final standards are not confirmed yet. It may be hard to say in terms of actual ratios or numbers. But as far as I understand, with the transition, I believe that the risk weighting that is applied to the Samsung Electronics shares that currently accounts for a big part of your overall asset holdings is likely to increase. So if you look at what has happened in Europe for these previously held stock holdings to a certain extent, a set of transition measures may have sometimes applied. So I'm interested to see whether that could also be a possibility whether the company is open to choosing that as an option is made available. And your Samsung Electronics shares, how much does it weigh your capital adequacy numbers in or on [ K-ICS ] terms. And of course, the transitory measures actually may have some negative impact in terms of shareholder dividends, but it's not all negative. So again, is it a viable option for Samsung Life? And second question is whether you have given any thought to the possibility of maybe making interim or quarterly dividend payouts going forward. Of course, this is assuming after IFRS 17 is going into effect. And you do receive a lot of dividends from different subsidiaries within the Samsung Group. But sometimes, for example, for a certain quarter, their dividend payouts actually may be more outsized versus their net profit, which may have the result of distorting your consolidated P&L. So do you also have any plans to ask the subsidiaries for any interim or quarterly dividends going forward?

Yes. So this is the CFO. In terms of the dividends that we received from our subsidiaries, of course, on the receiving end, it would be our profit we could receive the dividends on a quarterly basis because it would be helpful in terms of the stability of our earnings stream. So that is something that we can work together with our subsidiaries, and we do actually hope or prefer to have quarterly dividend payouts ourselves.

So in terms of what dividends we pay out, can we consider quarterly or half year dividend. That was the next question.

In terms of making quarterly dividends available, key determinants of course, would be quarter-on-quarter fluctuation in our P&L. So if, in fact, there are big swings in our earnings that could also hurt the stability of dividends, if they are paid out on a quarterly basis. Under IFRS, as you suggested, it could be more durable. We do agree with that as a possibility. But I think we would have to first validate how much our P&L earnings come out to under IFRS 17. So we'll have to see how the profits are realized under the new scheme first, and then we will get back to you and communicate our findings after this kind of review.

So I'm afraid the Head of the RM team was actually trying to answer that question regarding SEC shares, but his line was not clear. So this is [ Kim Yangon ] from the actuarial team. We will get back to you in writing regarding our SEC holdings. And regarding the transitional measures for K-ICS, although they have not been finalized, I can say that at the moment, we are not reviewing or considering those as an option.

The next question will be provided by Jun-Sup Jung from NH Investment & Securities.

Yes. So thank you for giving me the opportunity to ask about your 2030 mid- to long-term strategy. If you look on Page 19 of your deck, it seems that you're suggesting business mix, 70% domestic [indiscernible] overseas plus asset management. I think sometime last year, you actually described a mix that actually was quite different versus what is presented here. At that time, it was 38% domestic, 32% asset management, 30% overseas. So is there any particular reason for this kind of big shift in just 1 year?

So first, let me explain that our mid- to long-term strategy of increasing the share of profits from asset management and our overseas business as a percentage of total profits actually remains unchanged. But there was, as you mentioned, partial adjustments to our portfolio and portfolio mix because we do renew and update our mid- to long-term strategy every year. And actually, there was some effect from IFRS 17 as we anticipate domestic insurance earnings to increase quite significantly with adoption of IFRS 17. So that is one reason for the change in the mix. And then the portion of overseas insurance business appears to have slightly gone down. This is only because of certain delays that we have experienced for certain overseas projects on account of COVID-19. And just as a last comment, we intend to cover or make up for any decrease in the overseas insurance business side with new businesses, including from asset management.

The next question will be provided by Myung Wook Kim from JP Morgan.

Yes. I have two questions as well. It seems, as noted throughout the presentation that we are in a period of great transition with the adoption of IFRS 17. So when you look at 2022 overall, I think overall, there can be some confusion amongst the stakeholders as to how to assess and evaluate the company against what kind of standard or criteria. So is the value of new business, CSM, more profit. I think conceivably, there can be a lot of change in terms of how we look or assess companies. So what I'm trying to know is the KPIs, the set of KPIs that determine management compensation, how is that composed of for this year? I think in [indiscernible] it is well aligned and matched to minority shareholder interest, which is why I ask. And of the KPIs, which one has the heaviest weighting? And then second question is regarding the IFRS financial statements, I think you have said that they will be subject to BoD approval sometime in the first half of the year and pretty much finished by September or so. So then is it a fair expectation that by the time you have your conference call for the third quarter this year, we will have a set of parallel or compared to IFRS-based financial statements available to us to form the basis of our forecast? Or will we have to wait a little bit longer until you have the final closing data for all of full year 2022.

Yes. This is the CFO. Let me answer the first question regarding management compensation. Yes. So your question actually is something that is -- it's something that we constantly are mindful of and giving a great deal of thought too. So the compensation that applies to members of management actually is composed of many different KPIs. So it's a diverse mix. Some are geared more towards the short term, looking at insurance profits or EPS. Some look at efficiency measures like persistency rate or retention rates. Some have to do with the product portfolio. Also, there are qualitative KPIs that measure innovation as well. So under IFRS 17, I would say that the large scheme of things will actually not see any major change per se, but some metrics will become even more important. Notably, our mid- to longer-term efficiency measures will become very important. And so previously, we looked mostly at 13th month persistency along with retention rate as a key KPI, but we will be expanding the scope, looking also at 25th and 37th month persistency as well because that will be a key metric. So that will be the overall direction in terms of the KPIs. Again, the focus is not on short-term growth, but growth in the longer -- mid to long term. So that is the direction in which the indicators are being revised.

This -- head of the actuarial team again. In terms of the disclosure filing for the official comparative financial statements, it's actually supposed to begin after closing for the first quarter 2023. But as we settle our accounts throughout 2022 under IFRS terms, we will be able to assess the reserve structure and also see how the numbers shape up in terms of the actual earnings. So as things take more firm shape and we have a better idea of what the IFRS 17 based numbers look like, I think we'll be able to share those numbers through our conference calls with our investors as to what our underlying fundamentals are looking like how much CSM we are looking to capture to boost our earnings to what extent that kind of information we will try to make available. So it's hard to nail down exactly when we will be able to share their detailed numbers with you, but we are certainly committed to communicating with the market and our investors very proactively to aid your understanding.

There are no pending questions at this time. As a question. [Operator Instructions]

Yes, we will now conclude the earnings call for Samsung Life for fiscal year 2021 as there are no further questions. If there are any comments or inquiries in the future, please contact us at the IR team. Thank you very much. [Portions of this transcript were spoken by an interpreter present on the live call.]