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

Good morning, and good evening. Thank you all for joining the conference call for the 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 Third Quarter of Fiscal Year 2025 Earnings Results.

[Interpreted] Yes. Good afternoon. This is Minyoung Kim, Head of the IR team. I would like to extend my sincere thanks to everyone for joining us today at our earnings call despite your busy schedule. Before proceeding to Q&A, I will briefly take you through our third quarter business highlights. As of the third quarter YTD, we recorded new business CSM of KRW 2.3 trillion. Amid intensifying competition between life and non-life insurers, health CSM was the main driver of new business CSM growth recording KRW 1,751.7 billion, up 23.9% Y-o-Y. Overall, new business CSM margins remained solid at 11.5x against first month premiums and 16.8x for health policies in particular. We have been expanding our health lineup in a systematic manner, introducing pure health and refund type policies, which reflect customer needs. We have been leveraging AI-based risk rating models, also offering premium discounts based on the health status of policyholders and expanding value-added ancillary services, all as we continuously work to enhance our competitiveness. We are also refining the structure of our whole life products with a greater focus on death benefit coverage to maintain appropriate level of profitability. Our exclusive FCs have now increased to 42,000, and we are seeing both productivity and retention improve as we strengthen sales education for FCs and provide differentiated infrastructure support. As we look to expand our coverage in the nonexclusive markets as well, we are boosting the number of active branches and active planners to drive stronger CSM growth. As of the end of the third quarter, our CSM balance recorded KRW 14 trillion, up KRW 1.1 trillion YTD from robust new business CSM performance. Net profit attributable to controlling shareholders rose by 3.7% Y-o-Y, recording KRW 2,117.1 billion, thanks to solid insurance service profits driven by net CSM growth as well as increased investment profit from investment deals. Our K-ICS ratio was 193%, up 6 percentage points from the end of the second quarter as we maintain top industry levels. We intend to maintain a solid capital adequacy position into the future, boosted by high-quality new business CSM and rigorous ALM. We are seeing continuous improvements in our underlying fundamentals, thanks to strong new business CSM driven by health product growth, a net increase in our CSM balance from strict efficiency management and management gains and also from broadened earnings base from our consolidated subsidiaries. This year, as before, we will continue to implement shareholder return policies in line with our midterm shareholder return targets to enhance corporate value and support greater market recognition of our corporate value. Please refer to the materials that we have provided for you in advance for further details on our performance. Please be advised that forward-looking statements mentioned in today's call may be subject to change going forward from changing economic and overall business conditions in and outside of Korea. With that, we'll now start our Q&A.

[Operator Instructions] The first question will be provided by M.W. Kim from JPMorgan.

[Interpreted] Yes, this is Myung Wook Kim. I will be asking 2 questions. It seems that on the market, there are growing quite good expectations towards Samsung Life in terms of your value-up programs. But when I look at the materials compared to what was made available at the end of the first half, I don't note any major difference. Is there any particular reason why your announcement of the value-up program is being delayed apparently. It is towards the end of the year, so for us, we do have to make certain projections about expected dividends, which is why I would like to ask for more details. In the first quarter, you did dispose of SEC shares, and you did comment that those proceeds would be used as part of the pool of distributable dividends. But going forward, supposing that you have more disposal of SEC shares, and I think conceivably, there can be a lot of room for those types of events, given how Samsung Electronics themselves has done a lot of buybacks. It's just that they have not canceled out the whole amount just yet. But if we suppose that there are further disposals of such, what should we be projecting in terms of our expected dividends for Samsung Life? So regarding SEC dividends, for example, separate from the progressive dividend guidance, could we expect special dividends, for example, and embed that into our projections, would that be fair? Or if we can take the disposal proceeds multiplied by the current payout, would that give us some reasonable estimate of how much we can stand to be distributed from SEC disposal? Or if not, could the company provide more guidance? The second question has to do with private credit. It seems that starting from the advanced markets now into Asia, more insurance companies are actually investing more into private credits or private debt assets. And in an IMF report that was out in October, I think that was mentioned as well. So as a representative of insurance company of Korea, what are your thoughts in terms of insurance companies investing more into private debt as an asset class? Do you, in fact, have plans to increase those types of asset holdings for Samsung Life? In terms of the risk reward, do you think that it is in the interest of insurance companies to do more private credit in view of solvency capital and asset liability matching also liquidity profile, your thoughts?

[Interpreted] Yes, this is the CFO. My name is Wan-Sam Lee. So I do apologize for the delay in our announcements of our value-up program, but it's not for any particular internal reason that there is this delay. So currently, we are actually observing developments as they play out in terms of the direction of law or amendment of laws with regard to the cancellation of treasury shares led by the government. Also, we are observing market conditions in and outside of Korea as well. And so we are doing our best, and we will continue to do our best so that we can make our value-up program public and available to you at an appropriate time. And in terms of our disposal gains on Samsung Electronics shares earlier in the year, as we have explained before, for those disposal gains, we will distribute in the form of dividend separate from our ordinary or recurring profit base. In terms of the actual payback, I cannot specify at this time, but we will be defining a rational or a reasonable level. And once that is set, we will communicate back with you. So Samsung Electronics has announced their plans to do further follow-on second round and third round share buybacks and also cancellations, but they have not specified in terms of the exact timing. And so overall, in terms of the overall dividend payout plan with regard to disposal of SEC shares, we will again do a very comprehensive and rational review and update you further. And again, we are very strongly committed to implementing the shareholder return expansion policy that we have so far been communicating with you on.

Yes. This is [ Kim ], our Head of the Asset Management or Investment management team. So in terms of private credit exposure, yes, we do have some private credit assets, but it is to a very minimal extent because first and foremost, the most important thing is our ALM-based stance and remaining investments are allocated into alternative assets and a very small, less than 0.1% portion of those alternative assets are invested in private credit, mostly now in the form of fund of funds type instruments. But as we are looking to expand into the global asset management market, we have recently acquired Hayfin. I think this may have prompted concerns on the market that maybe Samsung will now substantially increase our private credit exposure. So I do understand where those concerns can be coming from. However, again, our current exposure is very limited. And even if we do expand some, it will still be to a very limited extent. And it happens that Hayfin, our new partner, actually has a lot of experience in management of those types of assets as well. The key management have a very good legal background as well and are very experienced in exiting on those types of assets for recovery. So it could go both ways. I suppose the private credit market can continue to grow or as per your concern, it could actually deteriorate. But irregardless of the developments, we were very confident that Hayfin would be very competent and able to deliver very stable returns, which is why we decided to go ahead with our recent investment. We will continue to build on our partnership with Hayfin as well and manage everything very tightly so that we do not -- there is no cause for concern.

The following question will be presented by Jun-Sup Jung from NH Investment & Securities.

[Interpreted] Yes. I will also ask a question regarding your investments. So in terms of looking out to the fourth quarter and 2026, could you just inform us to set our expectations for what kind of quarterly investment income you expect on an ordinary or recurring basis? There are many macro indicators, including interest rates that have been moving outside of expectations many times with widening volatility as a result. So what is your company outlook regarding those macro indicators? And again, what is your expectations in terms of investment gains on a quarter -- quarterly basis. Also in the third quarter, there was a onetime disposal gain this time. Do you have more disposals planned going forward?

[Interpreted] Yes. This is Kim from Asset or Investment Management. Yes. So let me take you through our outlook for the fourth quarter in terms of various indicators. For example, interest rates. So in terms of the fourth quarter and 2026 outlook, assuming that current levels of interest rates and also FX rates are maintained, we are assuming similar levels of investment gains relative to now. In the third quarter, we did have disposal gains on disposal of real estate property, but this is not a very frequent type of event, and we do not expect more in the near future.

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

[Interpreted] Yes. This is Byung Gun Lee from DB Securities. I appreciate that you were able to manage your performance well despite the challenging circumstances. I have 2 questions, mostly on your operating variance, particularly from claim payments. If you look at the trends, it seems that claim payment operation or operating variance actually is widening in terms of the negative -- towards the negative territory. And so what type of policy blocks perhaps by underwriting year, what block is it that is contributing the most to that kind of variance? And what do you think is the fundamental cause for this type of negative variance? And your guidance, please, when reflecting these trends, what kind of effect do you think this will have on CSM adjustments at the end of this year? Second question, I'd like to ask for your guidance on full year net increase in CSM as well. In terms of the retroactive period, you started -- or things started out on the shorter end. For the nonlife insurance companies, their net CSM increase actually has been quite good. But if you look at post application and the time that has lapsed, I think they are now reverting circling back toward their starting point levels. Given the K-ICS levels of the nonlife insurance companies, it's not something that we can be purely optimistic about. So if you could provide more guidance on your side in terms of net increase CSM on a full year basis.

[Interpreted] Yes. This is [ Aninta ] from the actuarial team. I will address your questions. So in terms of the reason for widening variance for claim payments post transition, so we have applied fair value valuation for the most part with 1-year retroactive application. So in fact, most of the negative or the widening variance is coming from fair value -- the fair valuation block from past sold legacy policies. So again, these are legacy products, health policies sold early in the 2000s or annuity type insurance policies sold in the '90s. Relative to our expectations against natural attrition, the actual decrease was less. And so we are seeing a widening of variance from a certain block of these policies from this specific time period. And it is true that our variance in the third quarter has increased slightly, but mostly due to one-off factors. So when we are looking at the impact of changes to assumptions, including loss rates and how that will impact end of the year CSM adjustments, well, we think that overall CSM adjustments will be similar to last year or end of last year levels. Then moving on to your second question. So 3 years ago upon transition to IFRS 17, most of the non-life insurance companies, I understand, applied 5-year retroactive period. And so there was an increase in the number of sectors that they had to manage. And then they actually started to be more aggressive in terms of their assumption application. And as a result, compared to life insurance companies, in relative terms, their CSM actually has been stronger as far as I recall. So post transition, obviously, you have a starting point for your in-force CSM. But from that period on, there will invariably be decreases to the CSM from amortization and adjustments. So what is very key is how to add on high-quality CSM going forward. And so whether a company can do this or not, I think will largely determine whether we can maintain a net CSM increase stance or not. So as you have seen, as you will know from seeing what we did over the last 2 years, we have been working very hard to secure new business CSM, and we have been working on various initiatives that will continue to further improve our margins while we rebalance our product portfolio as well. So while we cannot say definitively what the exact net increase number will be, it will be still safe for you to bet that we will continue to be able to see net increases to our CSM balance. So at the company level, we consider net increase to CSM as our #1 priority, and it is a key KPI that we are measured against. And this is, of course, reflected in our mid- to long-term strategy as well. And in order to boost net increase in our CSM balance, we are continuing to work to secure new business CSM, particularly from the higher margining in health type products where there's a higher CSM multiple. Also, we are defending against cancellation and enforcing tighter control against claim payments as well. So overall, as we have heard from Jung it on now, we will be enhancing overall efficiency and which is why we are very confident that we will be able to continue to sustain upside trends and growth in our CSM balance.

So I apologize, but if I can just clarify one thing real quick. So in your explanation of the reason for the operating variance, I think -- well, let me just first say last year, I think we saw how a fair value block due to some expense efficiency measures actually contributed to CSM growth. So in your comments just now, were you mindful of this, that this may also be reflected this year as well?

[Interpreted] So last year, there were some adjustments to our operating expense assumptions. And so there were -- there was CSM adjustments from one-off factors. But for this year, in contrast, we are expecting not one-off factors, but just recurring or ordinary factors resulting in CSM adjustments.

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