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

[Interpreted] Good day, everyone. Thank you all for joining this conference call. And now we will begin the Fiscal Year 2023 First Quarter Earnings Call by Samsung Life Insurance. This conference will start with a short brief by Head of Finance and Accounting, followed by a Q&A session. [Operator Instructions] Now, we shall commence the conference by Samsung Life Insurance.

[Interpreted] Yes, good afternoon. Thank you for taking the time to join us at the 2023 first quarter earnings conference of Samsung Life. This is [ San-Han Kim ], Head of the Finance team. In line with our prior notice, we will be focusing on a Q&A session with management for our first quarter call. Before proceeding, I will share the key highlights of our Q1 performance based on the materials that we have provided. We recorded our first quarterly results since adoption of IFRS 17, where we achieved notable outcomes, thanks to the preemptive efforts toward enhancing the long-term value of our business ahead of implementation of the new scheme. In Q1, we recorded net profit above KRW 700 billion, following a significant reduction in our reserve, interest expense, and fixed rate reserves following transition to IFRS 17, also thanks to strong new business and improved investment yields. We also made significant progress in expansion into the Asset Management business, which we will -- which we believe will be a key driver of growth for our company going forward. We acquired an equity interest in a French asset management company and took part in the Samsung's REIT IPO as the majority shareholder. As of the end of March, our [ ending ] CSM, which represents a source of future insurance profit, stands at KRW 11.3 trillion, recording solid growth of KRW 0.6 trillion from the end of the prior period. Driven by strong protection sales, first quarter new business CSM recorded KRW 846 billion, and we expect continued increase in CSM from strong new business growth and efficiency gains in our in-force book, which will drive solid insurance service performance into the future. As of the end of March 2023, our K-ICS ratio is expected to improve to somewhere within the 210% to 220% range, thanks to gains in Samsung Electronics share value and strong Q1 results. Based on our reinforced recurring earnings fundamentals and strong capital position under the new regulatory scheme, we are committed to maintaining our consistent stance of gradual expansion of our shareholder returns, which we explained at the start of this year. Under the new regulatory framework, we expect our differentiating strengths to become further solidified and we will continue to work hard to improve our underlying competitiveness in our core insurance industry to lead broad growth across the industry as a leading player, while also doing our best to upgrade our corporate value by advancing our new business initiatives, including global asset management, health care and digital. Please refer to the slides for further details on our performance, while also taking into mind that the projections on our conference call today may be subject to change depending on changes to both local and global economic conditions and business environment. Thank you. We'll now move on to our Q&A session with management.

[Interpreted] [Operator Instructions] The first question will be presented by Aditi Joshi from JPMorgan.

I'm Aditi Joshi from JPMorgan. So my question is actually related to the dividend payout ratio and the share buyback policy. So when we look at the solvency ratio, it remains solid, around 210% or 220% level as of March 2023. And when we look at the excess capital, which is above the 150% level of the required capital. So is it reasonable to say that this excess capital is fully distributable to the shareholders? And if so, is it reasonable to expect that the DPS hike will be in line or largely in line with the earnings increase in FY 2023? And in addition, given this good amount of excess capital on the balance sheet, can we expect a share buyback program in this year or in the next year? Any guidance on this would be very helpful.

[Interpreted] Yes. This is Sun Kim, the CFO. Let me take your question. So as you asked, actually the different forms of earnings, of course, the earnings streams will go toward payout of dividends. And also, we will determine the dividend payout commensurate to the increase we see in our earnings. But it is difficult for me to make more detailed comments at this point about what the DPS will look like at the end of this year because this is, in fact, the first year, where we will be seeing official IFRS 17 base numbers being reported. And there are some institutional issues that have not yet been resolved as well. And so on a full year basis, I think there can be certain sources of some change of volatility. For example, there can be one-off in terms of certain investment assets that can impact our P&L. Also our investment assets can also have an impact on our earnings as well. So I think we'll have to watch for progression of our full year earnings to inform you in greater detail about the actual dividend. And then regarding possibility of any share buybacks, of course, share buybacks will always be included in the set of available options that we could consider for our capital management purposes. But for the time being, we remain committed to the principle of gradually improving our shareholder returns by, first and foremost, increasing our cash dividends. And then throughout the remainder of the year, we observe our K-ICS and our earnings trends to make decisions at a later point about any possible share buyback.

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

[Interpreted] I'd like to ask 2 questions. First of all, the regulatory authorities have recently commented about 13 guidelines pertaining to real-loss indemnity-type products, also 0 surrender value-type products, which have been caused for some concern in the market. And so, I am assuming that, as a life insurance company, you will have applied different assumptions versus the P&O companies, and you have less exposure to 0 surrender value policies. But as far as the indemnity-type policies go, I think perhaps your assumptions, if anything, were more conservative than the P&C players. And if the assumptions are subject to certain change, there is a certain concern that it may affect your CSM. So what is your current position in terms of the assumptions? And if they do change, what is the expected impact to your CSM? The second question has to do with the difference between expected versus actuals. Actually, another insurance group in a recent conference call made certain comments that insurance companies have actually recorded a big improvement or increase in the difference between estimates and actuals because of conservative assumptions and that the investors should pay attention to this as an important metric. This actually is not really consistent with our previous understanding towards the metric, the difference between expected versus actual. So what is Samsung Life's position? And how do you intend to manage this metric going forward? And on a year-on-year basis, I think, in particular, there was a big negative shortfall, especially from the loading expense side. So what was the cause for that? And then what is your outlook going forward?

[Interpreted] Yes. This is the Head of the Actuarial team. Let me answer your question. Yes. So regarding the regulatory authorities comments regarding standardization of indemnity-type products, also 0 to low surrender value products. So just between the life and non-life companies, the products that have been provided to the market, also the timing and the loss rates on those products all vary. And so, I understand that the application also will vary and there will be a difference. And so, for our indemnity-type products, we actually determine our assumptions based on historical 3 -- past 3- to 5-year actual experience data, which is consistent with the LAT treatment that was applied in Korea. But since the FSS guidelines, actually have not been crystallized yet. I think it is too early for us to comment about the possible impact. And then regarding the second question, you asked about another financial group, which commented that it attributes the big increase in the difference from assumption and actual due to more conservative assumptions. So whether this is, in fact, true and if the upside did, in fact, come from conservative assumptions or not, we are not in a position to know the actual details. And so, it would be quite hard for me to comment. So you will find in the presentation materials that, for the first quarter, we recorded a difference of KRW 83.4 billion. So out of that total of KRW 80 billion or so, about KRW 20 billion is from the insurance claim. So the difference from insurance claim estimates versus actuals. There is a bit of seasonality involved, which is typically in the first quarter or the fourth quarter of every year, we do tend to see a minus, whereas in the second and third quarter, it turns to a plus. And for your information, compared to the same time last year, we did see actually an increase in the insurance claim, the difference amount by about KRW 10 billion. And then the remainder, KRW 63 billion or so is a difference in assumption versus actual from our loading expense. And for the most part, this difference actually was attributable to one-off type items, our contribution to the employee welfare fund, for example, or the fixed -- the confirmation of our education tax liability amount and also the payout of performance bonuses in line with the strong performance we saw in the first quarter. And so, the -- if you look at the business plan of last year, we -- our internal view is that, we did not see record any difference in assumption versus actual on any of those loading expense assumptions that were reflected in our business plan last year. In terms of how we intend to manage the difference, again, in assumption versus actual, well, we will stay consistent with the optimal assumption as defined within the IFRS 17 standard under the goal of converging ultimately to 0. However, given the ongoing uncertainties in the market, we think it would be quite impracticable to really expect it to be completely 0. So if you look at last year, we did manage to keep it within 1% of total reserves. So this year as well, we will focus on managing it at that very minimal stable level. [Interpreted] And this is the Head of the Support team. I just wanted to make a comment just to make sure that there is no misunderstanding. There was some mention that one of the one-off factors that resulted in the difference is attributable to the payout of performance bonuses as a labor cost item. Well, actually, this bonus amount actually has not been realized yet, but it has been earmarked upon assessment of the performance versus the business plan. But again, it is subject to adjustments across the full year.

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

[Interpreted] Yes. I would also like to congratulate you on the good results despite the challenging conditions. And same as Mr. Byung Gun Lee mentioned, I also am thankful for the company providing very detailed financial statements. I think it's quite helpful in informing us and helping us better understand. I also was quite curious about the difference between estimates and actuals, but you did explain it in some part. But I wanted to ask further. You mentioned some kind of a seasonality that may impact the difference, and it may have a different pattern from one quarter to the other. So what kind of difference do you expect across the 4 quarters of the year? I'd like to know more about that pattern. Second question, in terms of new business CSM, you have been quite consistent in achieving about KRW 3 trillion every year. And actually, it's something that all the companies in the market are also focused on. So if the situation evolves, that there is margin competition, is there a potential for your CSM margins to go down? And what is the current -- what is your margin on the new business CSM at present? And going forward, do you think it will increase or go down? And could you break down the new business CSM by different types death cover, health cover, et cetera?

[Interpreted] Yes. This is the Head of the Actuarial team. Let me take your first question regarding the difference between estimates and actual. So first of all, well, to share with you the conclusion first, it's actually quite difficult to reflect seasonality in our fair value assumptions because the correlation between seasonality and our overall efficiency actually has not been proven yet, which is why we do not look at the seasonality for the respective quarters but make our assumptions on a full year basis. In terms of the variance from one quarter to the next, I think we will have to observe the pattern going forward. But just for information, in terms of what we observed last year, let me explain just to provide you with just a bit of color. In terms of our insurance premium, difference between estimate and actual, in the first quarter and fourth quarter last year, we actually saw the actual exceed the projected estimate, which is why we recorded negative difference between actual and estimate, whereas in the second and third quarter, actually it was positive. And so, in the second and third quarter, it was a positive of KRW 10 billion. Yes. And your second question regarding new business CSM, where you mentioned what kind of impact there could be and the intensifying competition over CSM? Well, actually, any time we come up with a new product launch, we take into balanced consideration the market situation, market quantity and volume, also the earnings target for our company to manage our overall product portfolio across death, health, and financial categories under the principle of optimizing and maximizing new business CSM. And then in terms of the mix across the different products, death, health and financial, just in terms of the first month monthly premium for death, it's between 1,400% to 1,600%, for health, 2,500% to 2,600%, for financial 280% to 300%. So a clarification from the translator, that percentage was first month monthly premium against CSM, the ratio between the 2 indicators, sorry. And then in terms of the new business, CSM, you asked potentially whether there can be a deterioration in the margin from more intense competition. So it would depend on different products. So for certain products, it could be that the margins may be going down. But overall -- in terms of overall product volume and the overall product portfolio, we think that the margins have been maintaining overall upside. But then going forward, if competition becomes more severe, could that weigh on our margins. Well, because we are managing our products and product portfolio to be able to achieve our full year target of KRW 3 trillion to KRW 3.4 trillion in new business CSM every year. We think that even if -- for certain small pockets of products, even if margins may go down slightly, overall, on an aggregate basis for all of our products, we will be able to defend and manage good margin profile.

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

[Interpreted] Yes. So the first comment is not so much a question but a request. I do understand that there are some constraints in terms of establishing the seasonality, as you explained. But just going by the number that we got for the first quarter last year, it's hard for us to really tell. So if you don't mind, if you could provide us with the CSM movement, maybe statement for last year on a quarterly basis, also a P&L statement also for last year on a quarterly basis, I think that would help us better understand. And overall for the first quarter this year, there were certain -- or actually quite a lot of one-off one-time items. So then on a normalized recurring basis, and it seems that your overall recurring earnings actually were a bit on the lower side. So that considered on a full year basis, what is your expectation for full year earnings this year? And also, is the payout guidance of 35% to 45% that you mentioned at the end of last year, early part of this year, is that still intact? And is that still what you have in mind? And also, if there are changes to the financial market conditions and you are not able to meet your expectations in terms of earnings, is it still safe to assume that the DPS of last year would still be the bottom level? So anything -- any DPS would still be above that level? Second question regarding Asset Management. I think sometime last year, you announced the 2030 mid- to long-term strategy and plan, where you said the contribution of earnings from asset management and overseas insurance actually would be in [ line ] from 15% to 30%. On Page 18, you see that almost every year since 2021, you have actually been increasing your equity investments into overseas funds and whatnot. And so, as a result of those efforts, what is now the contribution from these initiatives? And what is the plan, and also the expected impact?

[Interpreted] Yes. This is the Head of the Support team, you mentioned that it appears that there were certain one-off factors resulting in a higher net income for first quarter, and you asked about our full year expectations. So for our business line purposes, on a consolidated basis, we are working under the assumption of achieving KRW 1.8 trillion for full year this year. Of course, it depends on the interest rate, also the stock prices from the second quarter onward, it could actually impact our valuation gain or loss. So it is hard for us to say definitively. But currently, our assumption is that, we will be able to deliver at above -- KRW 1.8 trillion or above. Yes. And in terms of the valuation gain or loss, we are actually disposing or we have plans to further dispose of SVPL assets to reduce any increased volatility to our bottom line from these type of assets. And in terms of the dividend payout, well, at the present position -- at the present time, it is hard for us to actually present any hard target per se. So, as our CFO explained earlier, it will be determined in line with the actual performance as it is achieved. And so, I will seek your understanding and that is the way it will be determined. And then I just wanted to comment that the KRW 1.8 trillion in net profit that I mentioned, we have incorporated to our business plan this year is actually the consolidated number on a pretax basis. And because it is -- the budget planned number, please understand that it is not fixed or finalized.

[Interpreted] Yes. This is Head of Asset Management. Let me take your question regarding the 2030 Asset Management plan. So Asset Management, of course, is a key priority and focus area for us. And I think in terms of the execution, we actually have been moving ahead of and more preemptively than any of our competitors in the market. Our 2030 strategy actually was formulated for the first time sometime in the summer of 2020. And relative to the schedule that we originally had in mind, there has been somewhat of a slight delay, but still, I think we have made significant progress. As you can see, we have made equity investments into key asset managers across major asset categories, encompassing traditional assets, also alternative assets as well, and also have been very diverse in terms of the geographical coverage that we have achieved as we very fast, rapidly ramp up toward our desired asset management structure. So our partnerships with the various equity partners, also our strategic collaboration with Blackstone will, not only help us enhance the profitability of our Asset Management business itself, but also is expected to help boost our investment yields in the longer -- mid- to long-term. And so, to recap, although compared to the original schedule, we are slightly behind. Nevertheless, we are moving along well according to the 2030 plan with no setback. And we are on track to achieve the 30% target that we outlined in the 2030 plan in terms of earnings contribution from Asset Management.

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

[Interpreted] Yes. And I have 2 questions for you. So you mentioned the KRW 1.8 trillion in pretax, net profit as your internal guidance -- internal view. It does appear very conservative to me. So given how at present the transition to IFRS 17 and the new K-ICS solvency scheme have all been complete. Then how have the KPIs for management, for example, been set or reset? So if you could explain how the performance incentives of the management have been revised? I would appreciate it. And what about the KPI for the sales agents? Perhaps in the past, they received higher awards -- rewards if they sold a certain type of product or they had a higher portion of new business sales. What about going forward, if they sell high CSM products, will they receive greater compensation? So I would like to know more about their incentive structure as well. And the KRW 1.8 trillion in internal guidance for net profit this year, if you exceed that number, then does that mean that management may actually receive even a greater performance payout? And second question, it seems, in terms of your overall financial statements, you are shifting toward more economic capital base structure. So what is your approach toward free surplus? And also, what is the current level of free surplus?