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

Good afternoon. Thank you for joining us today for Samsung Life's earnings presentation. Today, we will start off with the presentation by the company followed by your questions. [Operator Instructions] Now we will begin Samsung Life's 2025 first half earning's presentation.

[Interpreted] Good afternoon, everyone. This is Minyoung Kim, Head of Investor Relations. Thank you for joining us today for Samsung Life's 2025 First Half Earnings Presentation. Today's call is scheduled for 1 hour, starting with the earnings presentation delivered by our CFO, Mr. Wan Sam 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 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. Wan Sam Lee.

[Interpreted] Good afternoon, everyone. This is the CFO, Wan Sam Lee. I would like to thank our investors and analysts for taking the time out of your busy schedules to attend today's earnings call. I sincerely apologize for delaying the conference call due to my unavoidable schedule conflict, and thank you for your kind understanding. Let me start with our key business results for the first half of 2025. In the first half of 2025, despite the intensifying competition within the overall health insurance segment, we were able to grow our Health New business CSM by 27.6% year-on-year to record KRW 1.1 trillion, expanding our market dominance in the Health business. Multiple for the New Business Health products recorded 16.6x on the back of efforts to strengthen product competitiveness and manage efficiency. Through this, both the quality and quantity of new business improved. In addition, we were able to strengthen the foundation for CSM growth by increasing our exclusive FC agents along with increasing the number of active [ geo ] branches that sell our products. Our CSM bonds at the end of June was KRW 13.7 trillion, increasing by KRW 0.8 trillion year-to-date, owing to new business CSM of KRW 1.4 trillion and efficiency management. Consolidated net profit for the first half recorded KRW 1.394 trillion, having increased by 1.9% year-on-year, backed by solid insurance service results owing to increase in our CSM balance and stable investment profit. K-ICS ratio at the end of June recorded 187%, while our Tier 1 capital K-ICS ratio recorded 142%, both improved quarter-on-quarter while maintaining adequate solvency. Let me now walk you through our financial highlights. Our consolidated net profit for the first half grew by KRW 26 billion year-on-year to KRW 1.4 trillion. On a quarterly basis, net profit recorded KRW 759 billion in the second quarter, which is up from first quarter's KRW 635 billion. Insurance profit reported KRW 831 billion, while investment profit reported KRW 1 trillion in the first half. I will go over the specifics in the next slides. Insurance service results for the first half recorded KRW 831 billion, growing by 16.8% year-on-year. The strong earnings were led by an increase in CSM amortization profit on the back of increased CSM balance, while operating variance remains stable, owing to improved efficiency. In addition, CSM loss from in-force contracts dropped in the second quarter. We will do our best to secure a robust insurance profits by expanding our CSM balance by increasing quality New Business CSM and stringent efficiency management. Following is the breakdown of our investment profits. Investment profit in the first half reported KRW 1 trillion, lower from a year ago. Despite increase in recurring profits attributable to solid net interest margin and dividend income, investment profits due to lower subsidiary contributions. Even with the recent volatility in the financial markets, we plan to secure stable investment profits going forward through our asset diversification strategy under stringent risk management. Next is the current status of our consolidated balance sheet. Our total assets came in at KRW 319 trillion as of June and is comprised of KRW 218 trillion in invested assets, KRW 27 trillion in variable account, KRW 30 trillion in corporate pension account and KRW 44 trillion in Samsung Card and other consolidated subsidiaries. Total liabilities came in at KRW 285 trillion with insurance liabilities recording KRW 208 trillion, including KRW 13.7 trillion for CSM. Shareholders' equity recorded KRW 34 trillion. Next is the CSM movement. Our CSM bonds at the end of June was KRW 13.7 trillion, which is a favorable result with an increase of KRW 0.8 trillion year-to-date. As mentioned earlier, this is a result of us securing quality New Business focus on the Health segment in the first half, generating KRW 1.4 trillion of new business CSM. It also reflects CSM adjustment and amortization of negative KRW 0.1 trillion and negative KRW 0.7 trillion, respectively. Going forward, we will increase our insurance profit by securing New Business CSM more than that of the first half level and achieve stable CSM balance growth by thoroughly managing all efficiency indicators. Now let me explain the changes in shareholders' equity in more detail. Our shareholders' equity at the end of June came in at KRW 33.7 trillion, increasing by KRW 0.9 trillion year-to-date. The increase is supported by stronger Samsung Electronics share price and solid profit generation, which offset the strengthening of the FSS liability discount rate. Accumulated other comprehensive income came in at KRW 13.3 trillion, consisting of KRW 0.5 trillion in insurance finance income and KRW 13 trillion in financial assets, including valuation gains from SEC shares and bond valuation loss. Now let me walk you through our business highlights. In the second quarter, New Business CSM recorded KRW 769 billion, up by 16.8% quarter-on-quarter, thanks to strong high-margin health product sales. On a cumulative basis, new business CSM for the first half of this year recorded KRW 1.4 trillion. The proportion of Health within New Business CSM increased from 74% in the first quarter to 85% in the second quarter. On a cumulative basis, it recorded 80% in the first half. The CSM multiple of profitability indicator reported 12.2x, an improvement from 10.2x in the first quarter, while Health profitability stayed strong at 16.6x. Let me explain in more detail about the performance of our Health New Business CSM in the next slide. Health New Business CSM reported KRW 653 billion in the second quarter, which was an all-time high since the adoption of the new accounting standard IFRS 17. This was backed by enhancing product competitiveness and sales infrastructure. In the first half of this year, we enhanced our non-price competitiveness by improving the underwriting process and increasing services related to health care as well as launching new health products to lead the market. In the second half, we will further expand our sales power to become the #1 player within the health insurance industry, combining both life and non-life insurers. We will continuously launch new health products and improve our sales infrastructure. Through this, we expect to create more new business CSM in the first half of this year. Next is on our distribution channel. Our exclusive channel plays a major role in securing quality New Business as it has a competitive edge and profitability and efficiency management compared to peers. As of June, there are roughly 48,000 agents in our exclusive channel. As such, the exclusive FC channel saw a net increase of 3,500 agents year-to-date, maintaining our position as the industry-leading exclusive channel. In addition, FC agents that recently joined have greatly improved their sales power in selling the Health products and have played a pivotal role in growing the CSM, resulting in the Health proportion within protection-type products to grow to 83%. Next is on our GA channel performance. The expanded performance within the GA channel, we provided price competitive products exclusive to the GAs and improved our sales infrastructure. We also secured a partnership with over 3,000 branches with high productivity in addition to the 500 managers assisting GAs, which is one of the highest numbers within the life insurance industry. As a result, Health New Business CSM from the GA channel recorded KRW 132 billion in the first half, increasing by 3.7x year-on-year with the proportion of Health within the protection type rising to 77.5%. We expect the GA channel to continuously contribute to the expansion within the health market. Next is the usage of our AI and digital technology. For the past few years, we have been recommending paperless options, such as usage of the mobile for insurance transactions or managing customers. As an early starter within the insurance industry, we were able to secure leading digital competitiveness. In addition to respond to the rapidly changing insurance technology environments such as generative AI, we have established relevant teams at the end of last year to further advance our digital competitiveness. We have actively expanded the application of AI technology from previous chatbot centered counseling to insurance core tasks, such as New Business underwriting and payment. We also utilize the AI tools to improve the sales productivity of all channels, such as the FC, GA and GFC by analyzing the different riders and customize the insurance products for each customers. Next is our major efficiency trends. Protection persistency ratio, which is one of the most important metrics in managing the CSM stayed somewhere at 80% in the 13th month, while improving to 81% for the 25th month. Loss ratio recorded 80% in the second quarter, improving quarter-on-quarter driven by the death benefit segment, but inched up year-on-year, owing to the low base from last year due to the medical strike. Going forward, we will stably manage our annual loss ratio by expanding our risk premium, strengthening our underwriting and by managing fraudulent claims. Next is our asset management results. As of June, our invested assets recorded KRW 218 trillion, of which interest-bearing assets, such as bonds and loans account for 68% while equity and beneficiary certificate assets contribute to securing stable dividend income. Despite difficult environments and political uncertainties, our first half investment yield recorded 3.29% through asset diversification under tight risk management. Delinquency ratio recorded 0.22% as of June end, which is one of the lowest level in the industry. Going forward, we will do our best to minimize future losses through preemptive risk management, including tightening our underwriting criteria and trimming down our loan balance. Next is the K-ICS ratio. As of June, our K-ICS ratio recorded 187% due to increase in available capital, such as CSM balance and net profit, resulting in a 10 percentage point increase from the 177% posted in March. Please refer to the table on the right for details regarding our June K-ICS ratio and K-ICS sensitivity to the interest rate and SEC share price. We will continue our efforts to manage the volatility in our K-ICS ratio and maintain our capital adequacy over 180% by reducing the duration gap through increasing ultra long-term bonds and by seeding financial reinsurance. Lastly, I will go over the direction of our corporate value enhancement plan. Since the adoption of the new accounting system, we have continued to increase our shareholder return over the past 3 years based on improved fundamentals and profit growth. Going forward, we will gradually increase our shareholder return to meet the midterm target of 50% and enhance our corporate value by improving our ROE based on recurring profit growth and maintaining adequate capital. We will be reviewing our 2025 dividend payout ratio considering the recently proposed separate taxation on dividend income, in which one of the requirements is to maintain a payout ratio of over 40%. By doing so, we will do our best to ensure that Samsung Life can position itself as a high-quality dividend growth stock in the market. This concludes our presentation on our 2025 first half earnings results. Thank you for attending today's earnings call, and we appreciate your continued interest and support for Samsung Life.

Now Q&A session will begin. [Operator Instructions] The first question will be provided by M.W. Kim from JPMorgan.

[Interpreted] Yes. This is Myung Wook Kim from JPMorgan. I will be asking 2 questions. First of all, on a half year basis, it seems that your solvency capital ratio has recovered quite well. It's now up to 187%. So should we expect more or less year-end levels around 180% as I believe you stated as your year-end target or if you have any other views, please share. And the government, of course, has lowered the minimum capital ratio. So that said, what is the company's view towards your current capital position? 180%, would that be sufficient in terms of funding business growth for your fast growing business, I mean, while doing sufficient dividend payouts, what is the assessment? And second, if you look at the rate of growth for your -- for required capital, I think, certainly, it has slowed down. A lot of your legacy high-yield products actually are maturing and new products actually have provided a significant boost to CSM growth and they're capital light in terms of how much reserve they consume. So looking maybe the next 2, 3 years out, what is your outlook in terms of the growth path for required capital? And second, it seems that for the first half, you have seen significant improvement in terms of your profitability and soundness overall. So perhaps could this be translated into added benefits for your shareholders? When can we expect more details in terms of your value of disclosure? And what particular initiatives, if any, are you thinking about at the company level?

[Interpreted] This is [indiscernible] , the Head of the RM team. So as you said, our K-ICS ratio for the first half of the year has recovered back to 187%. In terms of attribution and key factors, the interest rate and share price increase accounted for 4 percentage points. The regulatory change by FSS, 5 percentage points and then New Business, another 1 percentage point. So up to the end of the year, assuming that interest rates and share price movements maintain at current level, we see both a mix of downside and upside factors. For downside, it could be end of the year distribution of dividends, potential fall of interest rates and CSM adjustment, but then we see potential for upside as we increase new business CSM. On balance, we expect to be able to deliver end of year K-ICS at above 180%, which is our target. So if we are able to maintain a K-ICS ratio of 180% at the end of 2025, we believe that there will be no major changes to our previous commitment in terms of dividend policy, and we find that, that would be an appropriate level. And in terms of required capital growth, which you asked about, we have been driving new business and sales primarily centered around health-related products. And as you know, in terms of the components of required capital, market or credit risk is actually quite sizable, whereas underwriting or insurance-related risk is not in comparative terms. And health products actually tend to have much higher CSM growth. So overall, we think our available capital will grow at a much faster rate compared to the rate of growth for required capital.

[Interpreted] This is the CFO. Let me cover your second question. So our utmost priority is to enhance shareholder value by driving stronger earnings growth to improve ROE. And so we will cautiously consider the macro conditions, including the directionality for interest rate movement in determining our capital deployment strategy to determine the timing for our value of disclosure. We are thinking very hard about potential New Business areas as well, which we will be reflected -- will be reflected in our value of plan. And so those include senior living business initiatives, also expanding the scope of our global business to also include advanced economies as well, which we are giving very serious thought to. And in terms of our K-ICS ratio, we believe that it is a sufficient level to gradually expand our shareholder return up to 50% in the mid to longer term, and we expect and we'll plan on maintaining 180%. So we will again be mindful of the changing market conditions, the regulatory and legal environment as well. And we will do our very best to be able to share more on our value program, an earlier date as much as possible. And we remain firmly committed to our shareholder return policy, and we'll work to make sure that it is executed with asset-back. And one other thing to add, as we work hard to gradually improve total shareholder return up to 50% in the midterm, we have also previously communicated our intent to gradually increase our payouts as well, which was 38% as of FY '24. And obviously, there is a pending issue where -- to qualify for a separate taxation of dividend income, there has to be an underlying payout above 40%, but we will be mindful of those types of development as well and work hard to enhance the attractiveness of the Samsung Life shares as a fast-growing dividend growth stock.

[Interpreted] May I ask one further question, please? So our share buyback and potential cancellation may be an important part of your value of disclosure. So any comments on the company?

[Interpreted] This is the CFO. So in terms of our plan for share -- treasury shares between cancellation of treasury shareholdings, and also new buyback and cancellation of new treasury shares, we have not yet established any order priority yet, but we are reviewing how best to leverage our treasury shares, mindful of enhancing corporate value in the mid to long term. If you look at the payout of the major financial holding companies and groups in Korea, it's usually between 40% to 50% of net profit, which is used toward a cash dividend distribution, also share buyback and cancellation. For us, in 2024, actually, we had similar payout at about 38% of 2024 net income. And we have also reiterated our commitment to gradually enhance that payout further to 50% in the midterm.

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

[Interpreted] Yes. Thank you for delivering solid performance. I have 2 brief questions. First of all, it seems compared to past levels, your CSM adjustment actually has gone down quite significantly. So if you could provide a more detailed breakdown of the adjustment. And I believe that CSM quality is a growing concern within the market. So apart from CSM multiple, what other meaningful indicators do you track at the company level? And what do you look at with particular interest in terms of the -- in terms of monitoring. Second, on Page 12 of your deck, I think you provide details about AI or digital-related initiatives. Could you provide any quantitative numbers in terms of how much efficiency gain has been achieved, how much in cost savings you have also seen if you have some numbers you could share, we would appreciate it.

[Interpreted] Yes. This is [indiscernible], Head of the Actuarial team. So in terms of the CSM adjustment for the first half, you asked for a detailed breakdown. So let me break it down into recurring factors versus nonrecurring. So in terms of recovering factor for CSM adjustment, it's due to an accounting operational variance. So it depends on the different labs rate at the time of valuation. So on a recurring basis, it's between KRW 200 billion to KRW 300 billion, what we call in-force variance. For the first half this year, we have 2 nonrecurring or one-off factors that came into play. First is the regulatory change to differentiate loss ratios depending on age group, which was enforced in the first quarter. And then the second one-off factor was in terms of a slight improvement to our assumptions regarding the depositor protection premium, also other dues and fees related to the second quarter.

[Interpreted] So this is [indiscernible]. I'm head of the Channel and Marketing team. You asked about what indicators other than CSM multiple we look at. So we look at various metrics, of course, new business CSM, labs, also CSM balance. And another major [indiscernible] of course, is the net CSM movement or net increase.