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

Thank you, everyone, for joining us today. We will now start 2023 Annual Earnings Presentation of Samsung Life. [Operator Instructions] Now let's begin with Samsung Life's presentation.

Good morning, everyone. This is In-Hwan Kim, Head of Investor Relations. Thank you for joining us today for Samsung Life's 2023 Annual Earnings Presentation. Today's call is scheduled for 1 hour and 30 minutes, starting with the earnings presentation delivered by our CFO, Mr. Chu Kyung Lee; 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 any 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. Chu Kyung Lee ].

Good morning, everyone. This is CFO, [ Mr. Chu Kyung Lee ]. I'd like to thank you -- thank our investors and analysts for taking the time out of your busy schedules to attend today's earnings call. I'd like to start with key performances. Last year was the first year of IFRS 17 adoption, and we achieved good performance in all areas of management under the new system and further solidified our medium- to long-term growth foundation. In 2023, consolidated net income attributable to shareholders increased by 19.7% year-on-year to KRW 1.895 trillion. Driven by new business CSM exceeding KRW 3 trillion annually, our CSM balance [ social ] future insurance service profit increased by KRW 1.5 trillion to KRW 12.2 trillion. On the sales side, we timely responded to competition in the whole life market in the first half of last year and expanded high-margin health sales in the second half of the year, resulting in a new business APE of KRW 3.104 trillion. In addition, to further expand our dominance in the growing health market, we launched new and revised products to enhance our sales competitiveness. As a result, the proportion of CSM from health products increased to 45% in the fourth quarter of 2023. Despite the volatile financial market environment, our K-ICS ratio at the end of December is expected to be in the range of 220% to 225%, which is one of the high solvency ratios in the industry. Based on our differentiated solvency, we continue to diversify our assets to improve our asset management profitability while improving investment yield. In diversifying asset management business to secure mid- to long-term growth engines, we also enhanced synergies with our affiliated companies and strengthened our global network. Next, I will talk about our financial highlights. The CSM balance at the end of 2023 was KRW 12.2 trillion, a 14% year-on-year increase. This was driven by new business CSM of KRW 3.6 trillion, CSM adjustment of minus KRW 1.2 trillion due to the application of FSS guidelines and changes in actuarial assumptions, and CSM amortization of minus KRW 1.3 trillion in the current year. Going forward, we'll continue to generate more than KRW 3 trillion new business CSM annually and stably manage in-force CSM to achieve solid growth in insurance service profits over the medium to long term. Here's the breakdown of our consolidated income statement. Consolidated net income in 2023 totaled KRW 1.895 trillion consisting of investment profit of more than KRW 1 trillion, thanks to significant improvement in negative margin with adoption of IFRS 17. An insurance profit of KRW 1.4 trillion, driven by good CSM performance in both in-force and new business of high quality. Looking at the quarterly P&L in more detail. While insurance profit generated a steady level of profit driven by CSM amortization, it declined slightly in the second half of the year due to the 2 matters. First is lower RA reversals in the second half of the year, reflecting the third quarter FSS guidelines. Second is seasonality -- seasonally high operating expense in fourth quarter and CSM loss due to a change in actuarial assumptions at year-end. Investment profit has shown some volatility in the first half of the year due to the one-off items such as pension termination, penalty gain and loss from the exchange of low to high coupon bonds. Nonetheless, we achieved the investment profit of more than KRW 200 billion every year on an ordinary income basis through asset diversification performance, dividends from affiliates and consolidated income. The following is our consolidated statement of financial position. At 2023 year-end, our total assets on a consolidated basis is KRW 315 trillion, consisting of KRW 220 trillion in general account assets under management, KRW 28 trillion in variable assets, KRW 27 trillion (sic) [ KRW 28 trillion ] in corporate cash and assets and KRW 40 trillion from consolidated subsidiaries such as Samsung Card. Of the total liabilities of KRW 270 trillion insurance liabilities amounted to KRW 190 trillion, consisting of BEL KRW 175 trillion, RA KRW 3 trillion and CSM 12 trillion. Equity is KRW 44 trillion, including accumulated other comprehensive income, KRW 26 trillion and retained earnings of KRW 18 trillion. Here's a little more detail on the changes in equity. At the end of 2023, our equity stood at KRW 44.3 trillion, an increase of KRW 6.1 trillion year-on-year, while KRW 11.7 trillion increase from the valuation gain on SEC stock price and bonds was offset by a KRW 7 trillion decrease in equity due to increased liability. Next, I'll talk about our business highlights and company strategy. In 2023, our new business CSM reached KRW 3.628 trillion, with new business CSM rate at multiple of 14.2x. In the second half of the year, we steered clear of the surrender value driven short-term payment whole life rate and focused on selling higher-margin health products. As a result, our new business CSM multiple improved from 12.4x in second quarter to 15.4x in the fourth quarter. Going forward, we remain committed to acting resilient to the whole life market under proper profitability. And we will continue to focus our corporate management resources, including product, channel and marketing to expand sales of health products such as we continue to generate more than KRW 3 trillion new business CSM annually. Next is our distribution channel, including the exclusive FC channels counting up to 24,300 persons. We possess industry-leading channel competitiveness, focusing on -- focused on exclusive sales force exceeding 30,000 personnel. Our dedicated exclusive channel plays a major role in securing quality CSM and generates high level CSM margin and efficiency results compared to other distribution channels. Furthermore, in order to correspond to the rapidly changing insurance market environment, we continuously monitor the market trend by examining nonexclusive channel strategies such as partnerships with affiliates and others. Next is our major efficiency trend. Protection persistency ratio, which is the most important metric in terms of managing the insurance profit has shown improvement to 88% in the 13th month and 70% in the 25th month maintaining a high level in the industry. This result was possible due to inflow of quality new business generated from our exclusive channel and exhaustive persistency ratio management, which is one of our core competitiveness. Meanwhile, our living benefit loss ratio has shown a slight increase due to the rise of medical usage as the pandemic has come to an end. While our overall loss ratio came in at 79% due to the improvement in death benefit. Going forward, we will do our best to manage extensive medical expenses and respond to fraudulent claims to maintain the loss ratio at a stable level within 80%. Next is our investment results. Our invested assets as of December 2023 recorded KRW 220 trillion, which consists of 67% of bonds and loans. Despite growing uncertainties in the external business environment amid the market interest rate volatility and concerns regarding the global economic recession, our investment yield and new money yield on interest-earning assets recorded 3.12% and 4.52%, respectively, backed by our strict investment strategy to increase diversified assets focusing on high-quality ones. As of December 2023, our diversified assets totaled KRW 56.3 trillion, accounting for approximately 30% of total invested assets. Although concerns related to overseas real estate and domestic PF markets have been increasing, we believe our risks are limited, and the NPL ratio is 0.1%, maintaining the lowest level in the industry. Next, I would like to explain the K-ICS ratio, which indicates our capital strength. At the end of December, our K-ICS ratio was estimated to be in the range of 220% to 225%. And despite the regulators' discount rate strengthening, which will be phased over this year, we expect our K-ICS ratio to increase from the current level backed by our management performances, including the inflow of new business CSM. Please refer to the table on the right for K-ICS ratio sensitivity regarding interest rate and SEC share price movement. Next is an overview on our ESG management results. As we aim to achieve ESG leadership at the global level, we have signed up 2 additional global environmental initiatives in 2023 and expanded ESG management procedures across the value chain, including our subsidiaries. And to create a framework for sustainable growth with our stakeholders, we will do our best to remain on track for achieving our major ESG targets, such as increasing our environmentally responsible investment balance to KRW 20 trillion by 2030. Next is our key business strategies for 2024. As it becomes a second year of IFRS 17 accounting system adoption, we will focus on enhancing profitability, expanding market dominance and securing future growth engines based on 3 key words: profit, expansion and growth. First, in terms of profit, we will increase our profit base by enhancing CSM profitability and generating stable in-force CSM growth. In terms of expansion, we will further consolidate our market dominance by launching innovative products with the goal of becoming the #1 insurer in both life and health insurance market. And lastly, growth-wise, we will accelerate investment performance by expanding M&As with overseas asset management firms, while improving operational efficiencies by utilizing digital technologies through our chatbots and increasing digital insurance transaction rate. In addition, we will actively consider expanding our business areas to high-growth sectors such as health care and senior living. Lastly, will explain -- I will explain our shareholder return policy. As announced in -- as announced late January, we declared DPS of KRW 3,700 for 2023, which has increased by 23% from the previous year's KRW 3,001. This was in line in the midterm dividend target under IFRS 17 announced back in February 2023 during our annual earnings presentation that we will increase DPS year-on-year base -- basis within the range of 35% to 45% payout ratio. Going forward, we intend to grow -- continue to grow our DPS while maintaining proper solvency. We understand that recently, there is much interest from our investors regarding the FSC's value-up program. The company fully agrees with the intent of the program, and we plan to actively participate in the program to enhance the underpriced company valuation. With the adoption of IFRS 17, we will actively examine specific value-up plans to improve our PBR-ROE to enhance through our recurring profit level and total shareholder return. This concludes our presentation on 2023 earnings results. Thank you again for attending today's earnings call, and we appreciate your continued interest and support for Samsung Life.

[Operator Instructions] The first question will be provided by Hongjae Lee from Hyundai Motor Securities.

First , I will ask about the value-up program, which I believe you have said that you are planning to do. Obviously, you will not be able to provide firm numbers, but could you provide a little bit of guidance in terms of what the leadership is thinking of in terms of the value-up program as we speak today? And in the mid- to longer term, what would be your target ROE? And how do you intend to achieve that target? So when you take out the one-offs actually for some time, it seems that earnings will come down to about KRW 2 trillion. So if you assume 40% payout, it does seem that raising ROE significantly may be quite difficult. So if you could provide the leadership guidance in terms of your outlook for P&L and also your capital deployment plans? I would appreciate it. And the second question is in a similar context. What would be your K-ICS target? Since you have a lot of big available capital, I'm interested in how you intend to put that capital surplus to use, if you could provide some quantification in terms of what ideas you have. I do see that by your sensitivity analysis, even under very extreme conditions, you believe that the K-ICS ratio will be above 200%. So what kind of red line, if you will, do you have in mind? So for example, if the capital ratio is 200% with a red line of 180, that means capital surplus right there is KRW 4 trillion. So between that and the aggregate dividend payment that you mentioned, there's a bit of a discrepancy. So at the very least, could you give me some -- a mix of how you intend to use the capital surplus, what percent will go towards shareholder value? What percentage will go towards M&A, new business even on a blended basis, I'd like to have more color on the mix.

Yes. This is the CFO. Let me take your first question. I think the main part of your question was regarding the recent announced value-up program for corporates. What kind of impact do we believe it will have on our ROE and our shareholder return policies? So as you are well aware, our PBR is between 0.3 to 0.4x. So it is true that we are considerably undervalued on market terms. So the main reason, of course, is our low ROE, which had been stagnant over many years now. So the main reason, of course, is our low ROE which has been stagnant over many years now and the main reason of course for the low ROE was our chronic negative spread issue and also widening volatility in terms of our variable P&L So we were not able to continue to grow our earnings on a recurring normalized basis constantly. So as a consequence, our payout ratio was somewhere in the mid-30%. And our dividend per share also, I believe, it is true, it has performed versus the investor expectations. However, with the adoption of IFRS, our underlying earnings fundamentals have become very much strengthened with lessened burden from the negative block -- negative spread block. And also we're able to better manage volatility from our variable P&L using hedging instruments. However, we take great pride in our competitive advantage across the entire value chain -- embrace encompassing the channel products and our customer management as well. And we have already established a very strong position in the health growth market. And so we believe that we will be able to continue to widen a high-quality CSM to drive consistent increase in our earnings. And so we intend to increase CSM, drive net CSM growth, which will in turn drive up our insurance service results. And through our asset diversification efforts, we expect our investment service performance also to improve. So based on those 2 drivers, we expect sustainable growth in our earnings on a normalized basis, which in turn will also deliver upside in ROE. And regarding our shareholder return policy, as explained earlier in the presentation, we intend to continue to gradually increase our payout. Thanks to underlying growth in our normalized earnings and improved fundamentals. And so next week, as you know, the government is going to announce their finalized value-up program. And so once that is set, we will also examine further methods to boost our PBR further, and we will be very thoughtful in reviewing other possible measures in terms of shareholder return, and we will communicate those findings with the market.

Yes. I'm Head of the RM team. Let me take your second question. So Samsung Life's target K-ICS ratio is between 200% to 220%. So the 200% to 220% band was determined benchmarking the advanced insurance companies in Europe, where a similar Solvency II scheme applies. So 200% to 220% K-ICS ratio is equivalent to AAA to AA+. Of course, in the event that there is a drop in interest rates and share prices, there can be material impact to K-ICS. So even under those work case scenario, we are working against the target of achieving a minimum threshold of 180% plus. So as you can see in the materials, the K-ICS regulatory scheme is continuously being adjusted. And it's moving towards lowering the K-ICS ratio overall. In 2027, of course, you know the liability discount rate is going to be reduced and also the underlying assumption risks will be factored in effective this year. However, for our company, we will continue to expand new business. And despite the regulatory change, we expect to continue to improve and increase our K-ICS ratio. And in terms of the deployment of that surplus capital, well, we will continue to communicate our plans with you in connection with the value of program as it is finalized.

The following question will be presented by Seung-Gun Kang from KB Securities.

Yes. I will also ask a question regarding shareholder value first. Prior to IFRS 17, the company had previously announced mid- to longer-term plans in terms of how to boost shareholder return. However, the results actually were not very remarkable, I would say. So although the value-up program by the government is also important. I would believe that the company, yourself would have some internal plans in mind in terms of your ROE. You did mention payout between 35% to 45%. But you must have some kind of internal plan in terms of the scheduling of that increase. So apart from the government program, you must have your original stance or your schedule. So if you could provide those details, I think that would be helpful in announcing a more reliable package -- more reliable plan regarding shareholder return because you had previously shared payout targets in the past before, but not achieved them. The second question is regarding the fourth quarter RA adjustment of about KRW 340 billion. This was additional adjustments. So could you provide some details about that?

Just to clarify, it doesn't -- you asked about the RA adjustment, but the number actually was not noted in our materials. Could you share the source of the number that you cited earlier, please?

So I think in your packet, there is a slide on the insurance liability movements. And then afterwards, there is a breakdown of RA movement. And it does say KRW 340 billion or so on account of assumption changes. So that's what I was referring to. So was there any institutional change or change to some underlying assumptions that led to that kind of RA adjustment?

Yes, this is the CFO. I'd like to explain more about our cash dividend payout plans. So our payout for next year actually is consistent with what was announced by the company last year in February, which again is a band between 35% to 45%. And so that remains unchanged. And we also committed to gradually increasing our dividend per share. So that also remains unchanged as well. In order to boost both our payout and dividend per share, the most important criteria for us would be how consistently we can continue to grow our earnings post IFRS 17. So that is what we intend to focus on going forward. So based on stronger earnings structure, we will continue to improve our cash dividend so that we can become an appealing dividend stock of choice for our shareholders. And again, once the value-up program by the government is further fleshed out and once we complete our comprehensive review of our shareholder return policy, we will hen be ready to communicate our payout plans for the following year.

Yes. This is the head of the actuarial team. Let me take your second question. So typically, in the fourth quarter of the year, there are changes to the underlying actuarial and economic assumptions that will be applied in the following year. So due to certain improvements to our efficiency metrics, including persistency rates, we do believe that there was a reduction in RA. But for further details or breakdown of actual movement, if you don't mind, if you could contact IR team, we will share those details with you.

The following question will be presented by Heewon Choi from Morgan Stanley Securities.

Yes. I will also ask 2 questions. The first is also on shareholder return policies that the others have already asked about, but I'd like to ask you in further detail. So you said that your goal is to continue to improve total shareholder return, including the 35% to 45% cash dividend payout. So do you have any plans at the moment for any share buybacks or any cancellation of treasury shares to achieve that goal? And the second question has to do with your real estate PF loan exposure and overseas commercial real estate exposure as well because through the press, we've been hearing a lot about some asset quality issues. So as of the end of the fourth quarter, what is your respective exposure for those 2 asset classes? How much losses have you recognized so far? How much add -- or credit loss provisioning have you set aside? And how much impairment or loss do you expect in 2024?

So like before since the first question has to do with shareholder return, I will, as the CFO, take this question. So as we have mentioned in order to boost our current low PBR ratio, the #1 lever to do that would be to improve our underlying earnings first and foremost. And then as a second line, of course, shareholder return policies, including the cash payout, share buybacks and share cancellations will also help. So again, our cash payout policy is to gradually increase payout within the 35% to 45% band, and cancellation of treasury stock and also share buyback, followed by cancellation. Well, these are certain measures that we are also intending to examine. So in terms of cancellation of treasury shares, while there are no legal constraints barring cancellation, we will still wait until the government announces its final value-up program on the 26th of this month. And then we will undertake a comprehensive review from the perspective of shareholder value return and communicate those findings with you.

Yes. I'm from the strategy team. Let me take your question regarding our PF loan and overseas commercial real estate exposure. As of the end of December 2023, our total -- local development PF exposure totals KRW 4.7 trillion. This represents 2.3% of our total invested assets. So to manage our PF loan exposure on a case-by-case, and investment-by-investment basis, we have been applying strict guidelines that involves getting payment guarantee from the urban housing corporation and also credit enhancement. And the scope of PF loans that we would be ready to look at is limited to 5 major cities, including Seoul and the metropolitan capital area. While we do also invest in certain non-guaranteed PF projects as well, those are strictly limited to very high-quality projects where the presale subscription ratio is above 90%, where they have very strong cash flow enough resources to pay back our principal and interest. So our investment returns actually have been quite high. And regarding our overseas real estate exposure, it totals KRW 5.2 trillion, which is 6.5% of our total invested assets. So these investments are mostly in major cities in the key office districts. So for example, New York, Paris and Frankfurt, and they're invested through a blind fund structure. So amid widening volatility on the global market, there has been a reduction in overall asset value amid rising LTV levels as well, which have led to a funding gap. So while we have been engaged with our partners to preemptively address the funding gap, we did register a slight loss of KRW 30 billion in 2023, but this amount is quite minimal. So although there are continued concerns over widening risk on the global real estate markets, we will tightly enforce control to minimize any further loss through individual investment monitoring and very close management and care.

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

Yes. I will also ask 2 questions. I think a lot of what I wanted to ask about was already covered, so I will be very brief and let me make a suggestion first before asking. But analysts, myself included, actually do our modeling based on SAP numbers, statutory accounting, and so we actually are challenged because the company does not provide the numbers at the conference call. I don't think it will come today, for example. And the fact sheet that you provided is not audited. So I do understand there are practical constraints on your side, but for our -- in order for us to take the numbers that you shared with us and translate into actual reporting, we do need the SAP accounting, the financial statements at the same time. So that's one suggestion. And regarding the value-up program, well, you have said that you will be able to answer more fully once the government program is fixed. So can you share some thoughts about the timing? When do you think you will be ready to make your announcement? Because as of the 20th January, all the insurance stocks actually share prices have started increasing. So if you delay the announcement too much, I think it would not be in the interest of supporting that stock price growth. So when do you think you'll be ready to make that announcement? And regarding the KRW 4.7 trillion, you mentioned in the PF loan exposure, how much provisioning have you already set aside against that exposure.

So this is the CFO. Let me take your first question, which I believe is asking about the timing of our announcement regarding shareholder return policies. So as you mentioned, the government will be providing the final program next week, Monday on the 26th. So we will see what the program entails and we will add on initiatives that we can do to live up to the expectations and share those results with the market as soon as possible.

Yes. This is the head of -- I'm from the finance team. Let me take your second question. In the fourth quarter, we did recognize KRW 14 billion in provisioning for certain real estate financial assets. And we set aside KRW 5.5 billion in provisioning against certain corporate bonds and PF loans to [ Tiong ] Construction, which has been in the news recently. So because the total size of our investment and exposure is not large and the presale subscription rate is 100% and with construction going as originally scheduled and because of the underlying payment guarantee and credit enhancement, we do not believe that there is -- we believe, there's minimal risk of any widening of additional risk and the overall provisioning amount is not sizable. And then independent from that asset, we did KRW 6.3 billion in provisioning for certain local investment and also KRW 2.1 billion in provisioning for certain overseas assets.

The following question will be presented by Hye-jin Park from Daishin Securities.

Yes. So I also have 2 questions. In the fourth quarter, it does seem that your CSM adjustment was not that big considering there were some onerous contracts, I understand in terms of your in-force CSM. So considering the loss, CSM adjustment does not seem that big. So could you provide some details on the CSM breakdown? And in the fourth quarter, BEL increased significantly, so I'm okay on the discount rate adjustment, but could you elaborate further on the adjustment related to changes to the assumption?

Yes, let me take your questions. I'm head of the actuarial Team. So you asked about some detailed breakdown of our fourth quarter CSM adjustment. I believe I can break it down into 3 components. So the first component of the adjustment is part of ordinary adjustments that are done every quarter. So this comes from any difference in the in-force CSM comparing the beginning of the quarter to the end of the quarter and also the difference in assumed and actual in terms of investment components. Typically, we saw about KRW 100 billion to KRW 200 billion deduction of CSM from this adjustment. But in the fourth quarter, actually, there was an increase by about KRW 40 billion. And the second component, as you may know, has to do with our fixed rate policy loans. The spread actually was reduced on the policy loans and recognized in the fourth quarter, which led to [ KRW 97 million ] decrease in CSM. And the third component has to do with the change to the assumptions that we do typically every fourth quarter. So as different outlooks deteriorate, there were some changes to assumptions, leading to a deduction of KRW 400 billion. However, that minus KRW 400 billion was offset by a KRW 300 billion increase owing to accounting -- for changed accounting treatments to accrued interest on policy loans. So while the market, I understand was expecting a larger CSM adjustment, because of this one-off offsetting factor, it was less of an adjustment than the market may have expected. And regarding the second question about the increase in BEL. So the lowering of the discount rate at the end of the year, well, is adjusted for and that actually flows through the OCI on the balance sheet. The KRW 400 billion, I mentioned change coming from -- the changes to the assumptions in the fourth quarter. That was the factor that led to the increase in BEL.

The following question will be presented by Myung Wook Kim from JPMorgan Securities.

Yes. I would also like to ask a question. First, on your new business CSM. So you have -- you are looking at around KRW 3 trillion plus in new business CSM. But how much longer do you think that kind of number can be sustained? So you have said that you expect earnings growth, which will enable dividend growth, and this will allow you to manage solvency capital on a stable basis. But I think that is all based on the preassumption that you will be maintaining it somewhere around KRW 3 trillion in new business, CSM. So how longer do you think that will be achievable? And a related question is, well, one of the key drivers of securing new business CSM will be, of course, the health-related products. Compared to other health-related products in other Asian countries, it does seem that the new CSM, the CSM rate or the multiple is actually quite high in Korea. So do you see any likelihood that those CSM multiples or the rates may actually turn more conservative in the future? Or in order to maintain current high margin levels, are you making an extra effort or some kind of effort at the company level? And if so, please explain also in terms of your product mix as well.

Yes, I'm the Head of the CPC planning team. Let me answer that question. So you asked well, in order to achieve KRW 3 trillion plus in CSM every year, well, how long do we think that, that can be sustained? I think that was your question. But actually, starting last year, in order to achieve that strong CSM of KRW 3 trillion plus, we felt that although the life insurance market actually is centered around whole life, we had to turn or shift our strategy to be more focused on health policies, which is what we do. So as you mentioned, the CSM rate or multiple for health policies are very high at 25x or 2,500%. So if we do more than KRW 10 billion, that actually adds up to monthly a total of KRW 200 billion or so from health. And then the remainder amount will be made up through whole life or the savings annuity type CSM. That KRW 10 billion target was set mindful of the current high CSM rates in the market. But there is the likelihood that it may actually become compressed in this very intense competition. And so for the health products, we do think as competition gets more heated, the margins may -- are likely to go slightly down. So again, our target is doing KRW 10 billion or more. But between the month of January and February, we've actually been overachieving that with around KRW 12 billion, which add up to a monthly average CSM of KRW 200 billion just from health policies alone. So although the margin profile of whole life is actually deteriorating still, if we're just able to make up for the remainder, KRW 50 billion, we are very well positioned to be able to continue our strength and our strategy over the next 5 to 10 years.

The following question will be presented by Byung Gun Lee from DB Financial and Securities.

Yes. So I also have some suggestions and some questions as well. There were some materials provided in your presentation regarding the profitability of new business. However, I would appreciate other data points as well regarding the present value of future premium for example, or the initial recognized contract because I think that kind of data will help distinguish, for example, your short-term payment or health type policies to see how they differ or are different versus the products of your other -- the other competitors? And then if you look at your fact book, it does seem that you really have not seen that much incremental increase in CSM from health or protection, actually as of the end of 2023, the health or protection CSM was KRW 5.6 trillion. So that considered, on a cumulative basis, is actually quite flat. So health new business of KRW 1.3 billion to KRW 1.4 billion. That actually means that there's virtually no additional health CSM which makes me believe that your -- the target that you explained means that your full year health new business CSM target is now somewhere between KRW 2 trillion to KRW 2.5 trillion. So KRW 2 trillion to KRW 2.5 trillion, is that a fair understanding in terms of your target for this year, and then I think [ 1.1-5 ] or something has to do with fair value method contract CSM. It seems in the fourth quarter, there was an increase of KRW 1 trillion, just for that item, which is quite out of the ordinary. So were there any changes to the assumptions? Or could you explain what this means?

Yes, this is the head of actuarial teams. So as you explained, in 2023, although we shifted our sales focus to be more centered around health-type products. Nevertheless, our health portfolio, CSM, did not increase in a big way. And I will explain why based on 3 reasons. So if you look at 2023, in the first half of the year, we still are focused on driving new business focused on the whole life products and made the shift to health products only in the second half. So the impact from that shift may be smaller than you may have expected. And then the second reason has to do with the FSS guidelines, which were announced in the third quarter. And as we mentioned, in our IR session then, as the guidelines call for unification of certain measures, we saw a reduction of CSM by about KRW 500 billion, of which KRW 300 billion were related to our health portfolio. And the third component, although it is not a big factor, it's still -- it still was one of the factors. And that has to do with the increase in claim payments that we saw after COVID. And so because those statistics and those trends were reflected the boost in our health portfolio, CSM may not have been as significant in the fourth quarter as you may have expected. However, as our management has explained, starting this year as we really expand our focus and drive health sales, we believe that we will be able to deliver on health CSM growth in line with market expectations. Also, the FSS guidelines were a one-off factor that will no longer be factored in this year. So that's another reason why we expect an improvement in health CSM.

So this is the Head of the CPC planning team again. Let me elaborate just more -- just a bit more about our CSM expansion plan. So actually, if you look at the product composition last year, the split between health and whole life was about 4 to 6. So a smaller portion of health. So if you look at our disclosed numbers, you can see a breakdown of the profitability by product. So for health, it's 25x, for whole life 13x, savings annuities 3x. Recently, of course, there has been a very sharp increase in the market for short-term payment type products. But it's a type of product that our company has been demarketing. So compared to regular whole life, short-term whole life actually has even lower margins, about half. So we've been very quickly adjusting our portfolio so that this year, the product split will be 60% health, 40% whole life. So to achieve our full year CSM target of KRW 3 trillion, that breaks down to KRW 250 billion in monthly CSM that we have to achieve. So right now, our health products have very high margins with CSM rate of 2,500% or 25x. So even if it does go down some to 20x, we will be able to achieve more than KRW 10 billion to total KRW 200 billion on a monthly basis. And also, it is -- although it is not highlighted, we also have a very solid flow of new system from annuities and also single payment type products as well, KRW 20 billion to KRW 30 billion monthly. So even under a very extreme scenario where there are regulations placed on short-term payment type products, we can be very definitive because we have already made the adjustments to our portfolio.

This is the head of the actuarial team again. Let me address your second question very briefly. So in terms of fair value method contract, so for us, this refers to in-force contracts written prior to 2020. It does not involve any inflow of new business. So any change to the CSM on that account is due to a change in the assumption. So there are 10 or so assumptions. So let me just explain 1 or 2 in a bit more detail. So in the case of annuities, after annuitization, we do reflect cash flow from policy loans. So the annuity to products that were previously sold prior to 2000 are now starting to enter the annuitization, the payout phase due to certain constraints, we were not able to reflect the cash flow for the inheritance type or the fixed type annuities. And so as we were examining our assumptions together with the outside accounting firm and Actuarial firm, we discovered that cash flow has not been reflected, which is why it was reflected on a one-off basis leading to that increase. And then another bigger factor was regarding certain products that were sold prior to 2010. So the final or terminal lapse rate actually improved on those legacy products, which is why the lapse rate on profitable policies, again, so prior to 2010 improved, leading to an improvement on CSM.

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

Yes. So a lot of the questions have already been asked. So I we'll just ask one brief question. And of course, thank you for delivering very good performance despite the challenging environment. On Page 20 (sic) [ 13 ] of your slide, it seems that your new business CSM multiple is around 14.2x lower for whole life. It seems that you will mostly drive new monthly premium growth through health sales and health products. So the multiple 14.2x, is your company view that it will progressively improve and increase from now?

Yes. This is Head of CPC Planning. Let me take that question. So when I think about the intention of what exactly we're trying to ask about, I think you may be suggesting that whole life multiple is 12.7x. But since the short-term payment type whole life is expected to go down, overall the multiple may be lower from current levels in 2024 for whole life. That said, do we think we can maintain that overall 14.2x. So for death or whole -- death cover or whole life, I do believe that the CSM rate is likely to go down by about 10% to 20% from current levels. And even for health products, maintaining current levels will actually not be easy. So given current volume, if we want to achieve our monthly target of KRW 250 billion CMS -- CSM, excuse me, we think that the BEP, breakeven, level would be about a multiple of 12x. However, we do believe that for the time being, we will be able to maintain CSM rate of 14x given how we have adjusted our portfolio, again, to be more focused on a bigger share of health products. So it's not about the absolute level of death versus health products, but the overall portfolio, as we grow the portion of health, this will help us significantly boost our new business CSM.

Due to time constraints, this concludes the Q&A session.

Yes. With that, we will now conclude our conference call for Samsung Life. Any further questions, please feel free to contact us at the IR team. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]