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

[Interpreted] Good morning and good evening. Thank you all for joining the conference call for Samsung Life earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Samsung Life's first quarter of Fiscal 2025 earnings results.

[Interpreted] Good morning. This is the CFO of Samsung Life. My name is Wan-Sam Lee. I'd like to first thank you for joining us at the 2025 first quarter earnings call for Samsung Life despite your busy schedules. Before moving on to Q&A, I will quickly take you through key first quarter highlights based on the materials that we have provided. At Samsung Life, we have been focusing our management resources on expanding market share in the growing health segment product planning, channel and marketing. Health now accounts for 74% of new business CSM, a record high as we continue to secure high-quality CSM in health. Together with improved efficiency, we have achieved a CSM balance of KRW 13.3 trillion, which is up KRW 0.4 trillion YTD. Last year, we provided a diverse range of products and coverage targeting the health market while improving the competitive of our sales, including underwriting and our sign-up processes. We also enhanced our non-pricing competitiveness by offering added health management services, achieving steady growth in health new business CSM. Our sales channel is also growing with a net increase of more than 2,000 agents year-to-date. Increased health product sales from our highly competitive exclusive FCs and GA channel has driven new business CSM growth, and we continue to see positive trends in the second quarter. In the first quarter, we achieved net profit of KRW 635.3 billion, up 2.1% Y-o-Y driven by an increase in CSM amortization, improved operating variance and investment profit, including dividends and consolidated gains. Despite economic uncertainties in and outside of Korea, we have achieved investment yield of 3.98% in Q1 under our Asset Diversification Strategy. Our K-ICS ratio as of the end of March 2025 is expected to decline slightly impacted by regulatory tightening and rate cuts, but still we are well above the recommended regulatory threshold and have secured sufficient available capital to expand our shareholder returns. We're also focused on a diverse set of measures to further improve our K-ICS ratio in preparation against potential financial market volatility ahead. Moreover, we will continue to maintain the highest level of capital adequacy in the industry by securing high-quality new CSM and adhering to a strict ALM strategy. This year, we remain committed to strengthening our core business competitiveness in insurance, while increasing our investment profits through selective investments in high-yielding assets, all while exploring new business areas such as senior living to drive future growth. We will progressively increase our shareholder return ratio toward our target of 50%, thanks to an improved ROE driven by recurring profit growth. Please refer to the slide for further details on our performance and be reminded that all forward-looking statements in today's call are subject to change due to changes in our domestic and global economic and business environment. We will now then move on to Q&A.

[Interpreted] [Operator Instructions] The first question will be provided by MW Kim from JPMorgan Securities.

[Interpreted] I have two questions for you today. First, it does seem that your solvency ratio is actually changing a bit. So could you share your capital adequacy or solvency ratio target at the end of this year? And I ask because nowadays, interest rates are trending lower, and it seems there is a tightening in terms of regulatory regulations regarding reserves. So I imagine that there might be an impact on your solvency. So what level are you looking to achieve by the end of this year? Second question is, of course, K-ICS is the regulatory scheme in calculating your capital adequacy. But for the shareholders, it doesn't really -- is not enough necessarily to fully understand how much excess capital the company actually holds. Of course, you do provide disclosure of your Tier 1 capital, et cetera. But what is your -- the company's view in terms of free surplus levels, particularly from the perspective of the shareholders?

[Interpreted] Yes. This is [ Changyi Won ] from the RM team. Let me take your first question. Sorry, this is [ Changyi Won ] excuse me. As the CFO said earlier in his remarks, we're expecting our K-ICS ratio somewhere within 180% or so as of the end of March this year. And you asked about our target K-ICS ratio for the end of this year. Right now, we are targeting somewhere similar to where it stood as of end of March, around 180%. As you mentioned, the rates are trending lower and there is regulatory tightening for reserves. That said, we expect to be able to reach around 180% by enforcing very strict ALM to achieve sound capital. So this will be driven through securing new business CSM, more purchasing of long-dated instruments and also making use of coinsurance as well -- reinsurance as well. And regarding your second question, yes, K-ICS is the regulatory capital adequacy measure. But the regulatory authorities actually have been exploring different means of further changing the K-ICS regime, lowering the 150% threshold to 130%, adopting a Tier 1 capital base K-ICS ratio as an instance, for instance. So the local K-ICS scheme still is evolving today. And so as the domestic and global economic environment continues to evolve, we're likely to see growing volatility also in market rates as well. So it will take some time, we believe, for things to settle down and stabilize. So we will be mindful of the revolving regulations and the changing economic environment. And as we develop further capital management policies and have a greater sense of the free surplus in connection with K-ICS, we will be sure to communicate our findings with the market.

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

[Interpreted] So, if you allow, I'd like to ask my two questions one by one. So my first question is, as you note on Page 1, you achieved a KRW 0.4 trillion increase in CSM YTD. So that's very strong performance. According to your disclosure as of yesterday, it seems that there are some one-off drivers that may have led to that kind of increase, particularly from your fair value through -- or excuse me, fair valuation method CSM block on death cover. So it seems that there was an increase of KRW 399.9 billion in the first quarter regarding future service CSM. So could you explain more on what particular driver resulted in that CSM growth? Because it is higher now than at the time of the transition and of course, it shows the capacity of the company to manage the assumptions well to deliver higher CSM. But I'm just curious about what kind of drivers. We do know that there were a lot of changes to your underlying assumptions, '23, '24, particularly in the fourth quarter. But if you could provide further details on the drivers of that CSM growth, I would appreciate it. Do you expect it to continue?

[Interpreted] Yes. This is [ Yongin Choi ], Head of the Actuarial team. So you asked about why we saw a particular increase in CSM from our death portfolio. So this is actually a reflection of the changed guidelines that you will know went into effect as of the first quarter of this year. This was where the loss rates will now be calculated differently depending on different age segments. So it was a one-off factor. So with this differentiation of loss rates by age group, what happened was for death cover, including whole life or term insurance, we saw an increase in CSM, while in contrast, for living benefit type coverage that covers hospitalization or surgical procedures, for example, we saw an increase in loss rates from the elderly group, which led to a slight decrease in CSM there. So in terms of CSM movement, so when we achieve efficiency gains, for example, that will have more or less an even effect throughout all parts of our portfolio. However, when there is a specific intervention on the part of the regulatory authorities, and that tends to have more of a concentrated impact on some parts of our portfolio. So that KRW 0.4 trillion increase in CSM, that adjustment for our death portfolio, again, is due to the one-off factor. You can proceed with your second question, sir.

[Interpreted] So I actually have a question. This has to -- it's just meant to make sure that there is no misunderstanding, but there was a recent earnings call by a financial holding company. I think there were some suggestions that the accounting assumptions underlying some of the disclosures or the numbers actually were not the most robust or coherent. So I do have a question about the accuracy of some of the disclosures live companies, particularly regarding the expected loss rates, expected persistency relative to expected risk premium. So there is some element of confusion about the assumptions. So when you project future cash flow, persistency and other assumptions, they're not based on the three profit source method, and it is a little bit artificial and very varies widely between companies. So could you just clarify on this part, include regarding perhaps the accuracy or the robustness of your disclosures?

[Interpreted] Yes. This is [ Yongin Choi ], Head of the Actuarial team. Let me try to take your questions. So you did ask a lot of questions all at once so it is a little bit difficult to isolate each one, I'm afraid, but I will try to answer in three parts as far as -- or based on the extent of my understanding. Yes. So as you know, as of the end of March, the industry overall actually started applying the revised disclosure requirements. And so that reflected the results of the insurance reform committee last year. In terms of the difference between companies under IFRS 17, we will not say that our simulations are ahead of implementation or tests more 100% precise. And I think regarding the second part of your question, when we calculate the premium, we do not apply market pricing, but we go by the three profit source method, which then means that we break down into risk premium and expense. So when we do this type of pricing, it includes, of course, the respective sources of margin. And this pricing method, actually, I will agree that results in a slight difference versus our expected components at the time of applying fair market pricing or fair market valuation. And I think the third part of your question, you were asking about our long-term loss rate projections. Well, if you look at the life versus non-life industry, the biggest difference is that life actually has a very high proportion of whole life health cover -- excuse me, whole life death and health cover. So the difference in that kind of product portfolio, the percentage is why for the life insurance companies, the loss rates may be lower at an absolute level. So it depends on the product portfolio and the structure of the in-force contracts in terms of what the loss rates are likely to look like in the long term, for example, after 30 years. So for companies that hold a lot of whole life, longer maturity products, 20, 30 years plus, we may actually see actual loss rates. The graph actually may be slightly different from what is expected by the market. And then let me just comment on my thoughts regarding the news, the media release from yesterday. So perhaps you will remember that early on at the time of introduction of IFRS 17 we stated that our company's principle in terms of BEL and in particular, our operating variance. Our principle was to do the valuation -- or excuse me, to make sure that the variance actually converges to zero. So while we did our best to assess our liability to make sure that the variance does converge to zero, because it is ultimately done by people, there is, of course, bound to be some volatility, which is why there is the risk adjustment or the RA account meant to be kept at a level similar to BEL. Also that is why when calculating CSM, of course, we take out BEL and the risk adjustment. So at the time of calculating BEL, I question whether it is best to try to increase BEL as much as possible through a conservative valuation to recognize a lot of operating variance early on. My question is because I don't believe it is consistent with -- necessarily consistent with IFRS 17. So in our company's case, actually, every year, we write about KRW 5 trillion in risk premium and our operating variance on claim payments or claims are actually under KRW 100 billion per year, which means actually the operating variance is below 0.2%, which is reflecting our effort to minimize it close to zero. So that is our practice in terms of BEL. So those were just my thoughts as an executive in-charge of IFRS 17, given how recently there has been a lot of coverage, news coverage. So overall, we will work harder to ensure that there is no miscommunication or misunderstanding regarding disclosure and disclosure standards. And we will try to communicate more closely with the authorities to ensure that, that is the case.

[Interpreted] Yes. Thank you for the very detailed answer. I only asked because there was very strange, strange development recently where as if a company is it tried to understate it CSM to boost operating varies. Some suggested that, that was very good business management as is. But thank you again for your clear answer.

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

[Interpreted] Yes. So you did explain about the factors driving up CSM when you mentioned the death cover block earlier. Could you break down the adjustments into from your general account versus the variable account, a breakdown of the various drivers for the CSM adjustment would be appreciated. Especially for the variable account, it seems that there was a negative adjustment? So could you explain why? And given the interest rate, the ambiguity that is likely to continue in the second quarter and likely fluctuation could you provide your expectations as well? My second question is regarding capital. There was a certain percentage drop in your K-ICS ratio. It seems that on the AOC side, on the balance sheet, there was a negative 11 percentage point impact from discount rate, interest rates. That was offset in part by valuation gains on some of the affiliate holdings. And then on balance, we have the effect on K-ICS. But we don't need to take out the subsidiary holdings necessarily because it is a very valuable asset. But just to have more clarity on the actual volatility profile, what if we take out that subsidiary holding piece? Could you provide more color on the capital? Also relative to capital, it seems that you had a more significant degree of change in terms of your impairment. So also, if you could explain further. Regarding the 100% K-ICS target for the end of this year, you just say that there are no further discount rate tightening expected until the year-end. But given the changing market circumstances and the interest rate cycle, do you think there can be some detractors to try from you being able to achieve that target?

[Interpreted] This is Yongin Choi from the Actuarial team. Let me answer your first question. So I think you asked two things in the first question. So let me provide a breakdown of the CSM adjustment items. So as of the first quarter, our total CSM adjustments were minus KRW 10 billion. This is actually KRW 250 billion to KRW 300 billion lower versus last year. So there was on a recurring basis adjustment of about KRW 200 billion in the first quarter, mostly operating -- or excuse me, variance on our in-force book from changing in the lapse ratios, as an example. On the nonrecurring side, for the variable count, as you asked, there was a decrease of KRW 90 billion due to tightening of the discount rates, in particular. And we explained about how there is no differentiation of the loss rates by age group. And so this led to improvement in our death cover block of about KRW 270 billion to KRW 280 billion as a one-off in the first quarter. So that resulted in a CSM adjustment of minus KRW 10 billion. And then let me answer your second question, the impact of falling interest rates on our variable portfolio. So -- and also the variable block actually, we apply 100% hedging. So any change in the interest rates will not lead to CSM adjustment or almost no CSM adjustment due to changing interest rates. And assuming that there are no further regulatory changes to discount rates, we do not expect to register CSM impairment on the variable block for 2025. So when we take out the effect of these one-off factors in the first quarter, we think that we should return to prior year levels starting in the second quarter in terms of recording CSM adjustments.

[Interpreted] Yes. So let me take your second question. This is [ Won Changyi ] from the RM team. So, yes, as you said, our K-ICS ratio dropped by 5 percentage points. There was a 10 percentage points impact from falling interest rates and tighter discount rates, and then plus 5 percentage point impact from the net increase in CSM from new business and also rising electronic share prices. And so as you mentioned, we do expect additional decrease in our K-ICS ratio as an impact from changing market interest rates. That said, we are enforcing very rigorous ALM through the purchase of long-dated instruments and also, again, the use of co reinsurance. And we are working together as one where the industry is working together with the authorities on possible adjustment of the risk calculation standards that are currently excessively conservative. And we think that as we move toward the end of this year, things will materialize and become more visible. And regarding the duration gap, it stands at 1.6% as of March 2025. So it is higher versus the end of last year by 0.5%, but still lower than the 1.8% we saw end of 2022. And in terms of the factors, the tighter discount rates was the biggest factor behind that increase in the duration gap. But again, we will try our best to defend against further increase by enforcing different diverse ALM measures.

[Interpreted] Yes. Let me elaborate on reasons for the decrease in capital in the first quarter. This is Woo Mu-Cheol from the Finance team. So in terms of interest rate sensitivity, interest rate sensitivity in terms of our net assets is about KRW 700 billion. So if you look at the 10-year Korean treasury yield in the first quarter, it did decrease by 10 basis points compared to end of 2024. For 20-year KTB, the yield dropped by more 20 basis points. And so our valuation loss on bonds or fixed income rose -- sorry, our valuation gain on bonds actually increased by KRW 1.9 trillion. However, our valuation gain or loss on our insurance liability was lower by KRW 4.2 trillion. This number breaks down to KRW 2.8 trillion from falling market interest rates and KRW 1.4 trillion impacted from the benchmark or policy rate. So in conclusion, as consequence of lower market interest rates in the first quarter, we saw a KRW 0.9 trillion decrease in our net assets. And we do not expect any further regulatory measures for the rest of this year. And so we will continue to increase our retained earnings by generating continued recurring profit and enforce tight management of our duration to minimize volatility in terms of our shareholder equity.

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

[Interpreted] I also have two questions. First, regarding your target, CSM. First, the target for new business CSM? And also what kind of CSM balance growth are you looking to achieve? And second question is regarding K-ICS. It does seem that there is a continued downward trend. And there are some questions, concerns raised from the market as to whether you will indeed be able to expand your dividends as per your guidance earlier this year. So for the first quarter, could you elaborate on the exact amount of profit available for dividend payments and the sensitivity? So if there's a 5 percentage point increase in payout, what kind of impact does that have on your capital ratio?

[Interpreted] Yes. This is Yongin Choi from the Actuarial team. Let me take your first question. And regarding the size or expected size of new business CSM for full year 2025. Well, as our CFO mentioned already, the portion of health in terms of our product portfolio has now passed 70% from April. So reflecting this, we're talking about new business CSM of above KRW 250 billion on a monthly basis. And when calculated for the full year, that means it's likely to be above KRW 3 trillion. So that would be where our new business CSM target is. And in terms of our expected or target CSM balance at the end of the year. While we can say for sure that we are expecting a net increase on a year-on-year basis, it is still hard for me to explain more specifically exactly how much. Given the potential changes to our assumptions or efficiency into June, for example, also given the lack of certainty about the policy direction of the authorities. And we have been enforcing tighter management on our claim payments, including the loss ratio. So we do not expect the CSM adjustment to be as sizable as it was in the fourth quarter of 2024. So in conclusion, we are expecting a net increase targeting KRW 13 trillion or above. But once we're more into the third quarter past June, I think we'll be ready to provide a more specific guidance.

[Interpreted] Yes. I'm Head of the RM team. Let me explain the sensitivity between payout and K-ICS ratio. So assuming the net profit at KRW 2 trillion, if there's a 5 percentage point increase in our payout, that will mean additional outflow of KRW 100 billion in dividend distributions. So considering that our required capital would be KRW 25 trillion, the impact to our would be minimal at minus 0.4 percentage points.

[Interpreted] So this is Woo Mu-Cheol from the Finance team. Let me add on our dividend capacity. So on a nonconsolidated basis, our unappropriated retained earnings currently stand at KRW 13 trillion, and we do not have any surrender reserves, which would have acted as a constraint on dividends. So we feel confident that we have sufficient dividend paying capacity.

[Interpreted] Yes. This is the CFO. So our K-ICS ratio currently stands at 180%. And again, we are targeting 180% by the end of this year, which is above regulatory requirement by the FSS. So given where we stand, we do not anticipate any problem in progressively moving closer towards the 50% in terms of our mid- to long-term payout target and we will remain committed to providing that kind of continued upside.

[Interpreted] Yes. If I can ask just 1 other question regarding Samsung F&M. So the procedure for incorporation as a subsidiary has already been concluded but you did not mention anything about the value program. So could you provide more details in terms of the expected time lines, directionality?

[Interpreted] This is the CFO. As you know, we incorporated Samsung F&M as a subsidiary as of April 30 under the Insurance Business Act. So we do appreciate the great deal of interest shown by the market in terms of the timing of our announcement of our value program, and I apologize sincerely for not being able to be more precise in terms of the exact timing. So in terms of value of, we consider boosting shareholder returns as our #1 priority, and we are committed to expanding our payout on a continued basis in the midterm to towards the 50% target. So as you know, there are very many abrupt changes to the domestic environment nowadays. And so again, I would like to seek your kind understanding in so far as we're not able to provide more details in terms of the exact timing of our valuation -- or excuse me, value up program announcement, but we will try very hard to see that we can do that as soon as possible.

[Interpreted] The following question will be presented by HeeYeon Lim from Shinhan Investment & Securities.

[Interpreted] If you look at the new business CSM trends over the recent years, I would imagine that the companies had a lot of hard thinking to do in terms of the balance between profitability and the sales volume. So it doesn't seem quite -- it doesn't seem easy at all to boost new business CSM in absolute terms. So I'm interested in the company's strategy in terms of new business between quality and quantity. So which side we have the priority? And if you could explain the internal view in terms of this type of mid- to long-term new business strategy?

[Interpreted] Yes. This is [ Lee Donghun ], Head of the Channel Marketing team. We're in the process of strengthening our underlying fundamentals focusing primarily on the high-margin health-type products in order to boost overall profitability. The portion of death products, which actually have lower margins and higher sensitivity to interest rates actually is going down in relative terms. So after IFRS 17 went into effect, we actually mobilized our focus or we focus on boosting sales of the high-margin health products. As a result, our first month monthly premium actually has increased significantly. It's now about KRW 10 billion as of the first quarter, a very big increase from the KRW 3.3 billion in 2023. So you asked about the balance between quantity versus quality. Certainly, over the last 2, 3 years, we have grown in quality terms, but at the same time, also in terms of -- excuse me, we have grown in terms of quantity, but also in terms of quality as well as we have worked to generate higher profits. And going forward, we will continue to improve our product portfolio centered around the high-margin health type policies and try to build and boost new business CSM above and beyond the death CSM, which is -- which has been declining.

[Interpreted] Yes. I am [ Che Changan ] from the Product team. Our product team has been consistently building our product competitiveness, again, focused on securing high-quality CSM centered around the health products. Thanks to these efforts, we continue to see net growth. Our monthly health policy sales were KRW 8.9 billion as of January, but recently, it's up significantly to KRW 14.4 billion. We'll continue to secure high-quality new business CSM as we see blurring of the lines between life and nonlife insurance companies, in spite of more intense competition.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] We will now conclude our 2025 first quarter earnings call for Samsung Life. If you have any further questions, please contact us at the IR team. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]