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 2022 Earnings Presentation. Today's call is scheduled for 1 and 30 minutes, starting with the earnings presentation delivered by our CFO, [ Mr. Sun 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. Sun Kim ].

[Interpreted] Good afternoon, everyone. This is CFO, [ Mr. Sun Kim ]. Thank you all investors and analysts for joining us today for our annual earnings presentation. As all of you are well aware of, the year 2023 marks a very important year in that the years efforts of the company to focus on long-term value will manifest in numbers with the introduction of IFRS 17 accounting system. Hence, before presenting the 2022 financial results, we prepare some time to introduce the company's vision and core value, which has set the foundation to our long-term growth and strategic goal, which and shared its value creation results. Amid rapid changes in insurance environment in 2020, the company established its new vision, Beyond Insurance, We Secure Your Future to keep growing as a project company by customers and various stakeholders. To accomplish the vision, we set our long-term strategies and put our best effort to realize our 5 core values, such as win-win growth, communication, value, integrity and new challenges. To take this opportunity, we share our gratitude for our customers and various stakeholders and we firmly promise that we continue to do our best to go beyond conventional business boundaries to achieve growth and development of life insurance industry as a life financial partner of our customers. In-force contracts, the company holds amounts to [ 19,050 ] and each month, 690,000 interest claims are paid. The company is well aware of its pivotal role in supporting Korean People's health and senior life and it will continue to work hard to make one solid pillar sustaining our society. Also, the company goes beyond the largest insurer by mere numbers to achieve its vision of becoming a responsible company by securing customers' health as well as financial assets with superior capital adequacy. Next is on the company's value creation for various stakeholders. Under the unprecedented change, including COVID pandemic, extreme polarization of wealth, climate crisis, the company pursued not just its profit maximization, but also sustainable growth that creates value for various stakeholders from employees, customers, shareholders to the society. It provides stable and healthy work environment to its employees and financier consultants totaling more than 36,000 shares, economic outcomes with the government, shareholders and customers, protect socially underprivileged by our co-prosperity mission and expand globally as a leading company in the industry. The company set the year 2021 as the beginning year of our ESG management and established 2030 vision with 3 core directives such as green finance, win-win finance and transparent finance. Since the beginning, the company obtained noticeable outcomes by expanding ESG investment and participating in global ESG initiatives. The company will continue to strengthen its ESG management policy and listening closely to valuable suggestions by investors. Next, based on company's 2022 business results and strategies. In year 2022, although a very difficult business environment persisted with huge market volatilities, the company attained meaningful outcomes across all areas, including insurance, asset management and new business and digitalization. The company achieved solid new business sales of protection products amid fierce competition in sales channels and secured future profit base against self-destructive competition with high rate products by peers. Also, the company waged the Health Asset campaign to create new demand in matured insurance market to expand the boundaries of insurance into health and asset management. Taking advantage of interest rate hike, the company improved asset liability matching and enhanced yield on interest-earning assets. While improving investment yield by timely disposal of invested assets, the company also diversified its asset management business across sectors and regions by entering into rich market and equity investing in global ETF operator. In addition, amid the deteriorating credit risk amid around real estate project financing in current capital market, the company sustained a superior capital adequacy. Lastly, the company advanced its digital transformation project, along with the expansion of mobile contactless channel, including Monimo and THE Health to secure MG customer base. Let me explain the company's 2022 results more concretely with numbers. First, on new business and efficiency measures. As aforementioned, the company maintained its profitability focused sales strategy and achieved high KRW 2 trillion worth of new business sales every year despite uncertainties from prolonged COVID crisis backed by its strong channel competitiveness. In particular, the health proportion within protection is maintained high at around 50% and efficiency measures, including persistency rate has been improving over time. Based on such achievement, the company expects stable CSM profit after IFRS 17. Next is net profit. As we already announced our net -- annual net profit figures through disclosure made on January 31, the 2022 net profit attributable to shareholders is KRW 1.583 trillion. And after excluding one-off non-cash items from a reversal of deferred tax liability following revisions in corporate tax law, its recurring profit recorded KRW 1.155 trillion. As shown on the right graph, the solid insurance profit due to the improvement in loss ratio mainly contributed to the sound result. Let me explain in more details on the loss ratio. Together with our increasingly large collection of risk premium every year, a large drop in real indemnity loss ratio following the regulators' track down on insurance fraud, mainly contributed a 4 percentage point drop in loss ratio over a year ago to record 82% of our overall loss ratio despite an increase in loss ratio of that benefit due to COVID. The loss ratio of company strategy product health type is well maintained at low to mid-80%. The company will do its best efforts to secure stable CSM profits by tight control of its future loss ratio. Next is on investment margin. Despite large losses from its negative margin and volatility of variable guarantee option profit and losses, the company has been stably managing its investment margin by timely sales of its invested assets. In year 2022, the company's investment yield surpassed 3% due to an increase in interest income and timely disposal of its real estate assets. Let me explain in more details on the company's asset management. The new investment yield has sharply increased following market interest rate hike. And accordingly, the yield on interest-earning assets improved by 10 basis points over a year ago to reach 3.15%. Also, despite worries about deteriorating asset quality due to impending economic recession and recent crisis around real estate project financing in industry, the company has been well managing its asset quality at the industry's top level as shown in its stably low delinquency rate and NPL ratio. Next is the company's 2023 business strategy. The year 2023 marks an important turning point in the company's 2030 vision for its sustainable growth backed by its past 3 years' efforts and the company will seamlessly prepare a solid strategic ground for the coming future. In our main insurance business, we target top 3 players in health product market, life and nonlife combined by proactive launching of new products to expand our market presence. Also, we aim to keep growing our asset management business to make it our new profit engine by creating synergy between asset management subsidiaries and equity investing in overseas asset management operators. In addition, we will actively explore new business, including nursing and health care business, while leading the industry in digitalizing insurance value chain. Next is on the new regulatory system such as IFRS 17, 9 and KICS together with the company's mid-term dividend target. As we explained briefly in the last year's Investor Day, the company's pretax profit is expected to shift upwards with a jump in our investment margin after adoption of IFRS 17. The company plans to secure new business CSM amounting KRW 2.5 trillion to KRW 3 trillion annually to keep focusing on sales -- by keep focusing on sales of high-margin products. At the same time, we will keep strengthening management of our efficiency measures, such as loss ratio and persistency rate to well manage in-force contract CSM. Investment profit will increase with the growth of our asset management business and its stability will be improved by reducing its sensitivity to capital market movements. A new capital regulatory system named KICS, is introduced together with IFRS 17 in 2023. In a field test run September of last year under the new system, the company surpassed 200% and is expected to show the industry top level capital adequacy going forward. By reducing volatility in its capital through ALM improvement and co-insurance, the company targets to maintain in the range of 200% and 240% in the base case and at least 180% in the worst possible scenario. Next is on the company's profit and capital sensitivity to interest rate movement. For years, the company has reduced its sensitivity to financial market movement by expanding ultra long-term bonds and selling floating rate products. As a result, the company's interest income spread is expected to decrease by roughly KRW 15 billion on average over the 3 years when interest rate drops by 100 basis points under the new system. But please note that such projection is based on a rather extreme assumption that interest rate remains minus 100 basis points for 3 years. Hence, even considering a recent market yield decrease, we expect our investment profit will stably increase after the adoption of IFRS 17. The impact of interest rate to our available capital KICS and CSM is also very limited. So, main financial indices under IFRS 17 are expected to produce stable numbers despite market volatility. Last is on the company's mid-term dividend target. The company targets to increase its DPS every year with payout ratio similar to the past year's level, which is around 35% to 45% on the recurring profit under IFRS 17. Contrary to the previous accounting system, in which profit volatility is very large and hard to predict, the IFRS 17 profit is expected to be stably increasing over the next 3 years. Although much uncertainties still remain in the market, we plan to expand shareholder return gradually backed by solid tax ratio above 200%, which is industry top level together with tight management of in-force contracts and asset quality. Also, as soon as the new system settles stably, we will examine purchase and cancellation of treasury stocks using our excess capital under the standpoint of total shareholder return. This concludes our 2022 annual earnings presentation. Please refer to the accompanying materials for the fourth quarter results. Thank you again all for participating in our earnings presentation. We likely ask for your continued attention for Samsung Life. Thank you.

[Interpreted] Now, Q&A session will begin. [Operator Instructions] The first question will be presented by Hongjae Lee from Hyundai Motor Securities.

[Interpreted] I have 2 questions. You said that you intend to consider additional co-insurance policies. So, compared to the co-insurance that you took out last year, is there any particular block or type of product within your portfolio that you want to see, in particular, for example, the interest-linked type whole life portfolio or what particular block, if any? And then what kind of effect has the co-insurance from last year has on your CSM and the KICS ratio as well? Second question regarding the dividend policies. I'm wondering which would be the higher priority, increasing DPS or boosting the payout ratio itself. And when you mention recurring profit or ordinary profit, what is the exact meaning from the company's point of view? Is it the amortization, the release of CSM? And what criteria will apply?

[Interpreted] Yes, this is [ Jeong-Soo Han ] from the RM team. Let me take your first question regarding the co-insurance. As a matter of fact, last year, November, we did enter into a co-insurance contract for a KRW 500 billion reserve for our interest-linked whole life products through asset transfer type policy and we are looking to do additional co-insurance contracts on other blocks of reserves. But last year, we focused mostly on the asset transfer type, but we want to diversify into different type of schemes as well. For example, the asset withholding type of co-insurance will also be considered for added diversification. Also, we want to expand the type of reserves that are ceded to go beyond just the whole life products. It may also include annuity products or other health type policies as well. We think that the effect of the co-insurance policies will be quite positive. It will provide protection against the risk of increase in liability in the event of a drop in interest rates, it will also allow us to hedge against liquidity risk in the event that there is a rise in surrender or termination of contracts. And so because of the amount of co-insurance taken out last year was not sizable relative to our original plans, any impact to CSM thus far has been quite minimal.

[Interpreted] Yes. This is the CFO. Let me take your second question regarding our payout policy. So, regarding your first question, where you asked whether dividend per share versus dividend payout ratio, which were of the higher priority. So of course, both are very important metrics that have to be taken into account. But if pressed to answer which where we place slightly more weight between the 2, I would say, slightly more towards the DPS side. So of course, with implementation of IFRS 17, it has become easier to understand our P&L with greater predictability and greater stability in terms of our earnings. That being said, there are still many pending factors at play, external factors, conditions in terms of the global economy and financial environment as well, difference between assumed versus actual numbers as well. That being said, in order to reduce any volatility in the interest of our investors, we do think that between the 2, we should place more greater priority on providing consistent increase or advancement of the dividend amount itself. And then your next question I think was asking about the scope of what we consider to be included within recurring profits. So, in general terms, of course, all earnings that are produced in the course of our ordinary business management activities are included in the scope. So of course, we intend to include CSM, also any gain or loss from disposal of assets will be included in this goal. But there are certain factors that we saw in 2022, for example, regarding the deferral of the corporate income tax liability or things having to do with our consolidated subsidiaries that really does not have relevance or that can be interpreted as being a result of our business activities. And so for those certain cases where we believe it is not appropriate to include within the scope to use as a resource for our dividend, we will fully communicate those types of exceptions with the market.

[Interpreted] The next question will be presented by Jun-Sup Jung from NH Investments and Securities.

[Interpreted] Thank you for giving me the opportunity to ask 2 questions. And I appreciated your guidance on the shareholder return policy in the mid- to longer-term. You mentioned a target range somewhere between payout of 35% to 45%. I'm curious as to how that range was determined. And under what scenario conditions, will you go with 35% versus different conditions for 45%? Second, I think somewhere in your presentation you mentioned that you may use some of your capital surplus to cancel some treasury shares. And so I think this, of course, has a bit -- will have a bearing on your KICS ratio. So, in the company's view, what is the optimal level of the KICS ratio? Mindful of the macro environment, also the market dominance objectives, et cetera. On Page 19, I think you suggest 240%, but that does appear a little bit high. And so what again is the company's view on the adequate level of KICS and then what are your underlying grounds?

[Interpreted] So, let me answer your questions. First, regarding how we arrived at our payout target range or boundary of 35% to 45%. And then what number in particular, would be applied under what conditions? I think I did partially answer your question a while ago, but from the perspective that we, as a priority, have to provide steady advancement of our DPS, we felt that we had to establish some boundaries, which is how we determine that range. If you look historically at our payout ratio, prior to 2019, it was below 30%, whereas after 2019, it was mostly over 35%. So, we felt that it would be appropriate to apply 35% as our lower band and then mindful of the externalities that I mentioned before, which could lead to volatility in our earnings performance, we felt that perhaps a 10% buffer or so for that kind of volatility would be required, which is how we came up with that 35% to 45% range. And then you asked about the total shareholder return ratio itself. I think still, we are in the process of studying it further and we cannot provide too much detail at this point. But after doing more study, we will communicate with you again on the overall directionality. And then you asked what is our target in terms of the KICS ratio as a measure of our solvency. Well, if you look at the global leading insurance companies like AXA or Allianz, these are AA+ rated or above type companies, their Solvency II ratio is usually between 220% to 240%. And so that was the reference for our range of 200% to 240%. But then this is not necessarily an absolute target per se. As I explained before, there are many sources of uncertainty, including interest rate movements and also other moving parts in the external environment. And so given changing conditions is in the event, we are pressed to a certain situation where our capital is squeezed and we have to defend at least a minimum threshold, I think that minimum amount or that KICS ratio, I think, is an even more important indicator. So, we think that the minimum threshold in terms of our capital adequacy is about 180%. To achieve that in those pricing conditions, that would mean that during our ordinary times, we will have to maintain KICS at above 200% and also strengthen our capital management policy to supplement against what could be an increase in external volatility going forward. With that being said, if we're able to do that, even at KICS of 200%, I think it would put us in a position where we could consider more proactive shareholder return policies.

[Interpreted] The next question will be presented by Myung Wook Kim from JPMorgan.

[Interpreted] Yes. I would also like to ask 2 questions. First, regarding management's KPI. So, with the change to the accounting scheme, the actual fundamentals of the company can be more well represented, which of course, is based on past contracts written. So, in terms of management compensation, given how recently the metrics have largely changed, what set of metrics will your compensation be measured against? So, if you could share the KPIs, I would appreciate it. And it looks like you have different parts of your business that you are working on insurance, asset management, digital. So, in terms of this year's capital allocation plans, which are the more important parts? And how does that link to your management performance compensation? So, what kind of targets have to be met for what kind of compensation? Second question regarding new business. So, with the industry, the total in-force contracts either flat or declining, you said you expect about KRW 2.5 trillion to KRW 3 trillion in new business every year. But how long do you think that you could expect that kind of volume of new business going forward? What is the management's expectation in terms of the sustainability, the time line?

[Interpreted] This is [ Soo Cha Young ], Head of the Support team. Let me take your question. So, even with adoption of IFRS 17, the management's stance centered around greater operational productivity and efficiency remains unchanged. And so going forward, in the insurance space, we will continue to work to strengthen our market dominance and also better manage our earnings centered around profitability. Under the new regulatory or accounting scheme, the biggest factor that will have the largest impact on our bottom line will be the size of our CSM balance. And so of course, the underlying assumptions in terms of our efficiency metrics, like persistency, the expense ratio or loss ratio or [ Z trial ] will have a large bearing on the CSM. So, for the company and also management KPI, not only the existing revenue and also insurance business-related metrics not only will they continue to be important, but we will place added focus on those efficiency measures as well.

[Interpreted] This is [ Kim Hyunyong ], Head of the CPC Planning team. So, let me take your question regarding for how long we think we can manage that certain scale of new business CSM. So, as an insurance company, obviously, we need to continue to generate CSM in order to enjoy and run a profitable business. Over the last several years, the protection market overall has been maintaining a size of about KRW 100 billion. And of that time, we have been achieving about KRW 12 billion in sales. So, assuming that this size of the addressable market is maintained going forward, we believe and intend to add on about KRW 3 trillion in additional CSM every year. In terms of our strategy to make sure that, that piece does not decline, well, over the years, we have been focusing on reducing the share of whole life or savings type products in our product portfolio. We've also been moving more aggressively towards the health-related policies and that is where we are in competition with the other P&C providers, but we want to be more aggressive and also flexible introducing new type of health-related products so that we can grow that part of the market to ultimately increase our CSM.

[Interpreted] This is the CFO. Let me just add 2 more comments. So from 3 years ago, we actually have been making continuous investments for example, the 2030 strategy, digitalization, other investments into health management type schemes as part of that larger vision. But still, we are in the very early stages and it has not yet been firmly established as one large pillar within our business per se. We're still in the early phase where we're testing the possibilities and trying to establish scale. So, I think we're not yet at the phase where we can talk about capital allocation across the different business areas to assess the performance and to share the -- or to talk about the compensation, reflecting the performance yet. I think now at this stage, it's up to the top management to take the initiative and really start and also scale investments into future areas by different business lines and defined KPIs, receive assessment on performance achieved. I think we're now at the stage of setting this up. And then how long can we expect to secure that certain size of new business CSM. Well, certainly, there are many reasons for concern. For example, the decrease in the population overall is largely expected and to be expected. And so there are these types of factors to the downside weighing on the market. But there are other reasons why we don't necessarily be -- have to be too negative about the future prospects because we have actually done many analysis of the demographic change ourselves. And our finding is that we still have lots of time remaining until we start to see really very steep or very rapid steepening of the demographic decline. And even according to the government outlook, they're forecasting that it may start only 20 years from now. And so until that time comes, I think, again, we will be focusing on the very promising health policy market, which invariably can only grow. So, as long as we strengthen our presence in the health policy space, I think we can maintain our CSM. And also we want to extend our business domain beyond just insurance. And we think certainly health-related management or maintenance services will be very key. So, that's connected to the various platform initiatives that I explained before. So, if we make that kind of preparation quite steadfastly, we will be able to continue to accumulate our target CSM, if not more.

[Interpreted] The next question will be presented by Byung Gun Lee from DB Financial Investment.

[Interpreted] I will also ask 2 questions. First of all, I'm sorry that I keep on asking a similar question to others, but dividends are certainly a big source of interest for us all. So, it does seem that last year's results on a separate basis actually were not high and therefore, there was not a very sizable increase in dividends. So, compared to the largest P&C player, actually, there's been sort of a reversal and your dividends are now below. So, in terms of the DPS, I think the market view may be that at the very least, it should grow again by at least 20% or more from current levels. But given the pressure from the regulatory authorities, I think the market is questioning whether that kind of increase could be viable just in one goal. So, could you just remind us again about the minimum range that you are firmly committed to defending in all cases? And second, regarding new business, I think a big part of your new business plans will be the channel side. You still have a very strong [ FC ] exclusive channel, but it is certainly experiencing aging, which is a concern that will mean that you may have to strengthen your GA channel or your presence on the GA market, but if you look at the P&C players, they are actually more proactive, making greater investments per se. If something Life does decide to move in, I think that you could wield significant influence. But given the different conditions that are at play, there are concerns again that in the next 4, 5 years, at least, there are questions whether you could grab a big opportunity on the GA market or not. So, do you have -- what are your plans regarding GA market? Could potential M&A opportunities be included in your plans?

[Interpreted] This is CFO. Let me comment on your question regarding dividends. So, I do know what the investors' expectations are regarding where we stand now. But I would still say it's too early for me at this stage to say in definitive terms what are absolute minimum line maybe. So, regarding our dividends for full-year 2022 relative to the actual performance achieved, our decision was to maintain the increased trend -- increasing trend and we applied a high payout ratio. And there were some concerns about the ratio. But again, we decided to go ahead because we wanted to maintain that kind of steady, consistent upside. And so into next year, as our profit grows, we believe that the dividend, the payout will also increase in a stable manner. But right now because there are so many outstanding factors that are not determined yet, I think we would still have to observe a watch and see how our P&L comes out to in the first quarter and then we would be able to communicate further with you.

[Interpreted] This is the Head of the CPC Planning team. Let me take your question regarding the channels. So as you mentioned, in terms of managing our business as an insurance company, the 2 most important parts are, of course, the products and the channel side. And we have really observed rapid change in terms of the channel space, which we are taking very seriously. So, we are giving a great deal of thought to the increasing trend where the channels are becoming increasingly non-exclusive. And so we began our discussions on how to react to these changing trends several years back. And more recently, we have been really shaping our direction going forward. So, we have been engaging in consultation with McKinsey and Boston Consulting. And based on our discussions and what we have heard from them, we believe that as the #1 player, how we address the rapidly changing GA market should be different versus the other competitors. Also, because we have a very strong -- very highly competitive, exclusive channel, we are seeking to reinforce that competitive advantage and also adopt a hybrid method in response to the non-exclusive channel development. So, if you look at our FC exclusive channel headcount, it's about 21,000 persons. And then although this is not widely known outside of the company, we also have additional 7,000 or so of non-exclusive planners, the AFCs and other financial service providers that we work with. So, it's a mixed hybrid of somewhere between 28,000 and 29,000. So, for the exclusive FC channel, they are mostly focused on selling the high value-add type products, whereas the non-exclusive channel, they are mostly handling the lower margin profile type products given saturation of the market and intensifying of competition with different companies increasing their promotional budgets to be more competitive. So overall, our policy is to maintain the strength of our exclusive channel while also addressing the non-exclusive channel and market, and we are, in fact, reviewing many means, including inorganic M&A opportunities as well. Although, this has not been disclosed to the market, we already, in fact, are engaged in this type of activity to strategically advance into the inorganic versus in the non-exclusive space and we intend to make capital injection and investments to use the non-exclusive channel to offer more financial services.

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

[Interpreted] First, I would like to ask about the new scheme. So, I apologize for continuing to ask questions along similar lines, but I think it's mostly because you have been very forthcoming with your data and communications, which is why we keep on asking. So, I'm interested in the components of CSM. So, other than the new business CSM that are newly accumulated and then the CSM that is amortized and released, other than those 2 components, are you seeing any rate movement or swings in terms of volatility from other factors like accretion of interest, for example, or any adjustments to the capital account, for example? So, if you could provide some pointers in terms of the overall movement trends, I would appreciate it. Second question regarding new business, particularly for the annuity type products, it seems that in the fourth quarter, you registered a loss in terms of the loading margin. So, was that because of an increase in refund payouts made in the fourth quarter? Or could you explain?

[Interpreted] So yes, this is Head of the Actuarial team, [indiscernible]. Let me take your question regarding the first -- the new regulatory scheme. So, assuming that it is adopted in 2021, what kind of movement or changes have we seen in 2022. So, before I present more detailed numbers, I would like to first begin by saying that because we had been preparing ahead of IFRS 17 adoption for the last 2, 3 years now, as of 2022, there weren't any big swings from adjustments and other factors as may have been part of the market's concerns? So although, the numbers are not final closing numbers, I would say that in 2022 over the course of the immediate prior year, we accumulated a total of KRW 3 trillion in new business CSM, which of course, was added on to the in-force CSM that we had to make up the total balance. So, in terms of interest accrual, we applied an accretion rate of 3.1% that is at the end of 2021. And because the change to the discount rate in line with changing market rate, which was reflected under OCI, there was no change or impact on our P&L from the changing market rates. Yes. I think over today's presentation, we have often mentioned the importance of efficiency metrics. And I think under IFRS 17, in terms of managing our earnings, the most important things that we have to manage very well are first our assumptions. And then second, the difference between our assumed and actual numbers. So in terms of the number for 2022, our adjustment from the difference in assumption versus actual was managed under KRW 50 billion, which is not big in comparison to the size of our company. And we intend to manage our company again with a focus on the efficiency measures. So although, we are aiming for 0 difference between assumption versus actual, reducing it to 0, of course, is impossible. But nonetheless, we think that we'll be able to manage current levels -- hold current levels quite steady for the next 2, 3 years out.

[Interpreted] Yes. This is [ Soo Cha Young ] from the Support team. Let me take your question regarding our low-teen loss in the fourth quarter. So, I will try to explain in detail. But if you need additional information, please do contact the IR team later on. But there are differences between IFRS 4 versus IFRS 17. So, I'd like to make that kind of distinguish as I explained. But in the fourth quarter, we did see our loading margin decrease versus the prior year by minus KRW 90 billion. So in terms of the reasons for the drop, our assumed expense, loading expense actually increased by KRW 230 billion. Our actual loading expense increased by KRW 63 billion. So, what happened was last year in November through December, we had a single payment type hybrid product that we released on to the market. It's hybrid applying a crediting rate after year 5. And so we sold KRW 1.7 trillion worth of this new product through our exclusive channel, KREW 200 billion were through our banca channel. So combined, we did KREW 2 trillion in sales of this particular product. So, for this hybrid annuity product that I was explaining, according to the plan, at year 5, we pay out a bonus for long-term persistency, but that actually was deducted as a one-time expense at the time of sale as part of the assumed loading expense. So, this was the primary reason behind the one-off change that we observed and recorded in our expense or loading margin in the fourth quarter. And -- but other than the hybrid annuity tech products, in the fourth quarter, were health type products did particularly well. These tend to have higher persistency and a more favorable margin profile. So, between the 2 types of products, there was a mix, both plus and minus effect in terms of the assumed expenses. And again, it was mostly the increase in sale of this hybrid annuity product that led to that increase I mentioned in actual expense, the loading expense. And in the fourth quarter, there were also additional cost items, payments or contributions towards the depository service, for example. But through the sale of this hybrid product, we were able to secure KRW 100 billion in CSM, which will start to be released into profit over the course of 2023.

[Interpreted] The next question will be presented by [indiscernible].

[Interpreted] Yes. So, I would like to just ask a question. Just to clarify, although I think you may have explained it on previous occasions. But what is the classification applied to PEA, the Policyholder Equity Adjustment under IFRS 17? And then could you provide more of a breakdown in terms of the supplementary Tier 2 capital to KRW 25 trillion?

[Interpreted] Yes. I'm Head of the Actuarial team. Let me take your question regarding the participating type product or contracts. So regarding PEA, the entry of PEA in our accounts, pursuant to an interpretation from the SSS received at the end of last year, the entry was changed from capital accounts to the liability accounts. And then regarding the regulatory authorities plan to improve the policyholder share scheme, although it has not been publicly announced, I understand that the authorities are planning to introduce this kind of improved scheme within 2023.

[Interpreted] Yes. I'm Head of Risk Management. Let me take your question regarding supplementary capital and also the transitional measures. So, in terms of the breakdown of our Tier 2, we have a surplus in excess of our surrender value reserves, which amounts to KRW 20 trillion. And then there is a portion of a valuation gain or loss that are allocated for policyholders, which amounts to about KRW 4 trillion. And then regarding the transitional measures that are approved by the SSS, at this time, we have no plans to apply.

[Interpreted] This concludes the Q&A session. [Portions of this transcript were spoken by an interpreter present on the live call.]