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

Hello. Thank you for joining us today for Samsung Life's Earnings Conference Call. The earnings presentation will be delivered by Samsung Life, followed by your questions. [Operator Instructions] Now we will begin with Samsung Life's Fiscal Year 2025 earnings presentation.

Good afternoon, everyone. This is [ Han Sung Kim ], Investor Relations part leader. Thank you for joining us today for Samsung Life's 2025 Year End 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 the domestic and overseas market conditions and operating environment. Let me now hand over the presentation to our CFO, Wan-Sam Lee.

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. Let me start with our financial highlights for the fiscal year 2025. Our consolidated net profit for the fiscal year 2025 grew by 9.3% year-on-year to record KRW 2.3 trillion, a record high, backed by continuous profit-driven performance and improved fundamentals. Insurance service results recorded KRW 975 billion, while investment profits recorded KRW 2 trillion. Let me now go over the specifics in the next slides. Insurance service results for the fiscal year 2025 recorded KRW 975 billion, driven by increased CSM profit from high-margin health products and better management of operating variances. Going forward, we will do our best to achieve robust insurance profits of over KRW 1 trillion by securing high-quality new business CSM and by strengthening the efficiency indicators such as a loss and lapse ratio, along with cost-cutting efforts by reducing fixed costs and countering fraudulent claims. Following is a breakdown of our investment profit. Investment profit for the full year was maintained at a stable level under the ALM principle despite losses from the variable account due to market volatility in 2025, resulting in a total of KRW 2 trillion. We will try to improve our investment profit year-on-year. Under the strengthened ALM principle, we will enhance our investment yield and reinforce risk management measures on nonperforming alternative assets to defend our profit against potential losses. Next is the current status of our consolidated balance sheet. Our total assets came in at KRW 351 trillion as of December and is comprised of KRW 247 trillion in invested assets, KRW 29 trillion in variable account, KRW 29 trillion in corporate pension account and KRW 46 trillion in Samsung Card and other consolidated subsidiaries. Total liabilities came in at KRW 286 trillion, with insurance liabilities recording KRW 201 trillion, including KRW 184 trillion for BEL, KRW 3 trillion for RA and KRW 13.2 trillion for CSM. Shareholders' equity recorded KRW 65 trillion with KRW 44 trillion in accumulated other comprehensive income and KRW 21 trillion in retained earnings. Next is the CSM movement. Our CSM bonds at the end of December was KRW 13.2 trillion, increasing by KRW 0.3 trillion year-to-date. This was driven by new business CSM of KRW 3.1 trillion. CSM adjustment of KRW 1.8 trillion due to updates on actuarial assumptions and regulation guideline changes, such as the hike in education tax, and CSM amortization of KRW 1.5 trillion. In 2026, we will focus our efforts on growing the CSM balance, which is the foundation of our insurance profit. We will do so by expanding not only the new business CSM, but also by strengthening the efficiency management measures. Now I will explain the changes in the shareholders' equity in more detail. Our shareholders' equity at the end of December 2025 came in at KRW 64.8 trillion, increasing by KRW 26.7 trillion year-to-date. The increase was attributable to an increase of KRW 2.3 trillion from the annual net profit, a KRW 3.8 trillion increase from change in our reserve discount rate and an increase of KRW 21.4 trillion in accumulated other comprehensive income, mainly due to the hike in Samsung Electronic share price. Now let me walk you through our business highlights. In 2026, our new business CSM recorded KRW 3.1 trillion, thanks to expansion of the high-margin health product sales. Over the past 2 years, we have strengthened our market position within the overall insurance sector by introducing new health product lineup, while increasing competitiveness for the coverage we provide. As a result, we were able to increase our health proportion within the new business CSM to 75% in 2025 compared to the 58% in 2024. Our CSM margin rose to 11.3x in 2025, an increase from the previous 10.5x in 2024, thanks to the increased proportion of high-margin health products. Let me go over the details regarding the performance of the health CSM. The annual new business Health CSM recorded KRW 2.3 trillion in 2025. In particular, we were able to enhance both the quality and quantity of our CSM by increasing the proportion of general health products compared to a year ago. Also, we were able to enhance the competitiveness of our health products by diversifying the product lineup based on differentiated customer needs and launched the surrender value strengthened health product, a product type specialized for life insurers. In addition, we also improved our nonpricing competitiveness by improving the overall underwriting process and providing additional health care services. Next is on our distribution channel. As of December, we saw a net increase of over 5,000 agents year-to-date for exclusive channel, resulting in over 43,000 agents as of 2025. Our exclusive channel generates approximately 70% of our new business APE, which accounts for 85% of our new business CSM, thanks to its high productivity and profitability compared to other distribution channels. We are implementing measures to manage the productivity of the newly added agents and to better manage our expenses. Continuing on as a major efficiency trends. Protection persistency ratio for the 13th month came in at 89% or 76% in the 25th month, both similar from a quarter ago. Loss ratio has been on a rising trend due to pent-up demand from claims following the normalization of the medical strike in 2025. However, in the fourth quarter, the loss ratio inched down on a quarter-on-quarter basis, recording 84% due to improvement from the living benefit. We will do our best to maintain our loss ratio at a stable level by reviewing the product structures, such as the risk rate for the coverage with a high loss ratio, strengthened the underwriting process and reinforced the review process of fraudulent claims. Now let me explain our investment portfolio. As previously mentioned, we are pursuing investment profit expansion through asset diversification strategies under the ALM principle. General account invested assets recorded KRW 247 trillion as of December 2025, of which interest-bearing assets, such as bonds and loans account for 60%. Our investment yield for the general account amounting KRW 247 trillion, recorded 3.1%, while the interest expense rate on the insurance liability stood at 3.2% for the KRW 201 trillion in insurance liabilities. In addition to the general account investment profit, we recorded KRW 1.3 trillion from the consolidation and equity method profits from subsidiaries, totaling our investment profit to record KRW 2 trillion for 2025. Next is on the K-ICS ratio, which represents our capital soundness. Despite regulatory tightening of the discount rates in 2025, we expect our tax ratio to reach around 198% as of December 2025, thanks to improved fundamentals supported by a net increase in CSM balance earnings expansion of favorable market conditions, such as rising Samsung Electronics share price and interest rates. Our Tier 1 capital tax ratio is expected to stand at around 157%, which significantly exceeds the financial authorities recommended level. Going forward, we will remain committed to maintaining an industry-leading capital adequacy able. Now let me guide you through our future strategies for 2026. We will pursue sustainable growth from our core insurance business and enhance profitability through our asset management business going forward. For our core insurance business, we will continue to grow our exclusive channels, strengthen our [ J ] channel competitiveness and increase the sales of our high-margin insurance products. In addition, we plan to continuously grow our CSM balance through efficiency management, such as improving the persistency ratio and managing the loss ratio. For our Asset Management business, we plan to strategically allocate our assets and enhance our investment returns under our ALM principle and find additional growth opportunities in overseas insurance as well as investment management companies. As a future growth strategy, we established a life care ecosystem that integrates the usage of digital health care and senior living. From the digital side, we will increase work productivity using AI and big data and also expand the infrastructure environment for distribution channels. From the health care side, we'll build the business model to monetize on the health care services provided. As for application health, we will increase this usage to prevent the disease beforehand and manage risk. Lastly, for Senior Living business, we will strengthen the foundation for mid- to long-term growth by utilizing our subsidiary Noble Life, which was established in 2025. We will expand our business through market differentiation and internalizing our operational know-how. Lastly, let me go over the direction of our corporate value enhancement plan. As previously communicated, we are committed to achieving a midterm target shareholder return of 50%. For the fiscal year 2025, our dividend per share came in at KRW 5,301, an 18% year-on-year increase, thanks to earnings improvement and enhanced dividend payout ratio. Going forward, we will continue to expand our total dividend amount by increasing the dividend per share by more than our recurring profit growth each year based on improving fundamentals. This concludes our presentation on our 2025 annual earnings results. Thank you 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 MW Kim from JPMorgan.

I will ask 2. First, about the PEA adjustments. If you look at the end of year materials, it does seem that there was some reclassification of PEA from liabilities to the capital accounts or the equity accounts -- excuse me. So even if you do not consider the valuation gains from your SEC shares, just on the strength of your core underwriting insurance profits alone, on a CSM basis, we can anticipate gradual improvement in your underlying profit. And then if we assume 50% or so target payout, as the size of your shareholder equity continues to grow, that may mean that there is limited room for further upside in terms of improving on your ROE. So could you address this question and also give us some more backdrop to the changed reclassification or accounting treatment for your PEA account? And any midterm plans for added capital efficiency? And second, my question has to do with future dividend policy also distributable pools to fund future dividends. Obviously, Samsung Electronics share price has increased significantly, and this has translated into improved capital adequacy ratio for Samsung Life as well. Compared to a couple of years ago, I think the rise in SEC share prices is actually quite significant. And looking forward at a potential future point when you are ready to dispose of those shares, there may be significant disposal gains. So could you -- I think you mentioned possibility of a special dividend in the past. So could you clarify that further possible use of proceeds from disposal of SEC shares, how you intend to return those excess gains to the shareholders? I would appreciate it.

Yes. This is the CFO. My name is Lee Wan-Sam. Yes, let me first take your question on the policy holder, the PEA adjustment. So previously, in December of last year, there was a return notice provided from the FSS to the association of life insurance companies in Korea, regarding the accounting treatment for PEA accounts under life insurance companies. So pursuant to the inquiry and also the subsequent response from the FSS, we have determined that in accordance to the accounting standard number 1117, starting at the end of the current period, we will begin assessment of those liability, we will do the liability assessment. And then briefly on our mid- to long-term ROE. So we intend to continue to deliver solid growth in terms of CSM, particularly net CSM growth driven by new business to continue to improve our Insurance Service profits underlined by ALM practice, increase in our net interest spread, diversification of our investment portfolio and also increased contribution from our consolidated equity method gains to -- which will also help improve our investment profit. So the goal is to gradually improve our ROE in the mid- to long term and consistently improve our dividend per share as part of our ongoing capital policy. And then further on our dividends. So we have consistently emphasized our midterm target of 50% in terms of shareholder return. And we intend to continue to deliver solid earnings and profit growth to enhance the visibility of our shareholder return policy. And our #1 principle in terms of shareholder return would be the consistent enhancement of our DPS. Over the last 5 years, we have increased our dividends at an annual average growth rate of 16% or more. And going forward, we will continue to increase our dividend per share at above or at minimum above the growth of our ordinary income. So that we can anchor ourselves as a stable dividend growth stock. When we determined our dividends for 2025, we factored in not only our recurring ordinary income, but also the disposition gains from SEC share sales that were generated in February last year. So those will also be included in our pool of distributable profits to fund dividends. And this plan remains unchanged. That being said, as you mentioned as a source of concern, it is hard to really anticipate the exact timing of when those disposal gains will likely occur from SEC shares. And the size of those proceeds also are subject to great variability as well. So in terms of achieving our steady increase in dividends, which is our goal, this could act as a potential variable. And so it is hard for us at this point to specify exactly what part of those disposal proceeds in terms of the exact dividend ratio will be provided to our shareholders. However, our #1 goal will be to continuously increase our dividend per share consistently year-on-year, when we feel that our K-ICS ratio is above a level that we find to be adequate. And we will consider both our net profit and also SEC sale gains to consistently improve our DPS.

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

So for 2026, if the company can provide your guidance in terms of how we should be thinking of new business and other performance metrics as well. And nowadays, there is a lot of talk about surrender value reserves. And so I'd like to hear more on Samsung Life's position, how -- in terms of your overall approach?

This is [indiscernible] from the Channel Marketing team. Let me take the first question. So we do expect challenging conditions to continue in 2026 with the introduction of regulations for different fees, also guidelines for loss rates and expense ratios as well. However, regardless of the external volatility or change, nonetheless, we are strongly committed to achieving our full year 2026 target of KRW 3.2 trillion or more in terms of new business CSM. So that will bring us above the KRW 3.1 trillion in new business CSM we reached in 2025. And then a measure of the profitability of our new business, which is the new business multiple, which is new business CSM over volume. We achieved 11x multiples in 2025, but we'll strive to achieve 12x higher multiple in 2026.

Yes. This is [ Yongin Choi ], Head of the Actuarial team. Let me take the second part of your question. So the authorities did mention that practices may have to improve regarding surrender value reserves in the interest of expanding shareholder returns and also enhancing corporate value. So this was mentioned sometime in the fourth quarter last year. So although the authorities made that initial announcement, nothing actually has developed further beyond that point. So it is hard for us to say where exactly this policy is likely to be headed. That being said, in terms of our approach, we do expect broad improvements in what may be a more rational or reasonable theme in the interest of better consumer protection, also mitigating excessive competition.

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

I'd like to ask 3 questions. It seems that in the current quarter, there was quite substantial CSM adjustments. I believe potentially there might have been one-off factors, including the increase in the education tax, the rise in the corporate income tax rate as well. So could you elaborate further on how these one-offs impacted your CSM also your profit? And second question is, you did mention that in the first half of this year, the loss ratio and expense ratio related guidelines are expected to go into effect. So could you also give us a rough idea of how you believe the guidelines should affect your CSM also profit as well? And third question is starting in 2027, the Tier 1 capital adequacy ratio will start to be adopted. So in the mid- to longer term, what kind of adequate level of Tier 1 capital and also your K-ICS ratio, are you looking at?

Yes. This is Yongin Choi, Head of the Actuarial team. Let me take the first the second part of your question. In terms of the cause of the CSM adjustment in the fourth quarter, broadly there were 2 drivers First was the increase in the education tax, which accounted for an adjustment of KRW 300 billion. And then the second large component came from our indemnity products, an adjustment of KRW 600 billion to KRW 700 billion. So this also reflects the lowering of premiums on indemnity products, mainly the first generation and second generation of indemnity loss products at the end of 2024. And also with normalization after the medical strikes in 2025, this did lead to an increase in indemnity claims. So that was the second driver. So typically, for a given quarter, we usually have a CSM adjustments around KRW 200 billion or so from changes to policies, also other nonrecurring one-off factors. So when we take out those 2 main components that I mentioned, the CSM adjustment is actually in line and consistent with past trends. Now regarding your second question. The authorities did issue a press release regarding potential guidelines for actuarial assumptions, including expense ratio and loss ratio. So in terms of the direction of the proposed guidelines, as far as the loss rate are concerned, we actually had been quite conservative in our assumptions, particularly for nonrenewal type policies. So the guidelines, if anything, will be an added plus for us. In terms of new coverage, the TITAN guidelines may represent a partial detraction. And regarding the expense ratio assumptions, we have already been pricing in inflationary assumptions as well. So regarding shared cost, the cost allocation, we believe that the guidelines will be quite reasonable or rational. At this point, I think we do not have exact details in terms of the direction of the policies, particularly regarding the criteria for calculation of the loss ratio, also a review of the underlying statistics for calculating expense loading, also the scope of the assumption. The assumption calculations is also quite expensive at this point. But once these outstanding points are determined, we will be sure to communicate back with you.

This is Lee Jungsun, Head of the RM team. Let me take your third question. So in terms of the Tier 1 capital ratio that you mentioned, according to the regulations, 80% was proposed as the recommended level while the regulatory threshold was set at 50%. As of 2025, our Tier 1 ratio is actually 157%, which is substantially above both thresholds. Because Tier 1 capital regime is going to go into effect only in 2027, in the interim, ahead of 2027, exactly what level we will manage our Tier 1 against, we will have to do some more further review. But given that the Tier 1 ratio has slightly wider volatility versus the K-ICS ratio, roughly speaking, we think that Tier 1 broadly within 120% to 130% would be largely consistent with our mid- to long-term K-ICS range of 180%. In terms of the exact level that we will be managing against, we will get back to you before the regulations actually enter into effect.

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

We did talk a bit about dividends. And you did clarify the proceeds from SEC shares sales will be used as part of the funding for future dividend payments. So in terms of the overall picture, by 2028, the company has stated that you intend to gradually increase your payout ratio up to 50%. Now our hope was that in the interim up to 2028, we would have liked to see the SEC the disposal gains be used to fund special dividends as an added layer instead of having to wait until 2028. So we had -- there were some expectations that we might see a rather faster increase in your payout at the front end. However, based on what you have announced this time, it does seem that we will have to wait until 2028. While the disposal gains will be included in the overall distributable pool, it seems like you're painting a more or less linear trajectory as you move towards that 50% target. So because there might be those types of concerns, if you could clarify and provide us with more clear guidance, I'd appreciate it.

This is the CFO, Lee Wan-Sam. So again, it is very hard for us to also estimate the exact timing of when we will see disposal gains on our SEC shareholdings. And also the size of the disposal and the gains also is subject to a lot of variance as well. That's why we cannot specify exactly how much of those proceeds will be used to fund the dividends. So in terms of determining our strategy, we intend to be quite strategic. For example, the core behind our capital management policy will be the gradual improvement to our dividend per share. And any time that there is a disposal of any of our affiliate shareholdings at a scale that could potentially impact that. Also, any time we have a nonrecurring source of earnings, we intend to evenly allocate those proceeds over a specific time period and include in the pool of funds available for distribution. And so overall, we will be quite strategic. And again, any time these types of events may occur, we will review internally and update the market as quickly as possible.

The following question will be presented by Jiwon Kim from DAOL Investment & Securities.

Just a quick question before you're ready to wrap up. You mentioned that potentially nonrecurring earnings may be used as part of special dividends. You did mention that you will be strategic, you'll be allocating those proceeds over a certain time period. In terms of time period, would it be within the timetable of your value-up plan, so within the balance of, say, 2028 or '29?

Yes, this is the CFO. In the event that we do a major sell-off of SEC shares and indeed, see a sizable gain from the disposition, in that kind of scenario, still the size -- or it would depend on the size of the disposition gains, also the DPS growth rate at that time, which we'll inform how exactly we will allocate evenly over what exact time period. So we will try to follow up with more specifics at that time period or at that time. And so again, because we cannot accurately predict exactly when the timing will come for the sell-off of the SEC shares and what size of that will be. I apologize that we are not able to be more specific in terms of the expected timing.

The following question will be presented by Sinyoung Park from Goldman Sachs.

This is Sinyoung Park, from Goldman Sachs Securities. I think I'd like to ask 2 questions on the timing of your announcement on your value-up plan and also cancellation of treasury shares. I think we've been waiting for some time now for the company to announce your plans on the value-up program. Other affiliates within the Samsung Group apparently have already begun cancellation of their treasury shares. So when should we gain more visibility in terms of Samsung Life? Will you potentially be ready to make that announcement once the proposed revision to the commercial code is finalized? Or even then, would there be any additional consideration that you would have to take into consideration, it would be very helpful to know.

First of all, I'd like to express my sincere apologies to our investors who I know have been waiting for quite a long time. I apologize with the delay in our disclosure of our value-up plan. So we are currently observing developments as they unfold, including evolving market conditions in and outside of Korea. Also, the government moved regarding the proposed change to the laws regarding treasury share cancellation. And once the revision is finalized, then we will undertake a review of what we will do with our treasury shareholders, including possible cancellation and update the market. And again, it is hard to predict exactly when the commercial code revision will be finalized and complete. But once the bill is passed into law, we will, again, undertake in a comprehensive consideration, our overall value-up program, including measures to enhance our capital efficiency. So again, it will be a comprehensive review of what we do with our treasury shares, including possible cancellation, also our mid- to long-term profit outlook. Also, our shareholder policies will be included in our value-up disclosure at that time.

As there are no further questions, we will now conclude our conference call. For further inquiries, please contact the IR team. [Statements in English on this transcript were spoken by an interpreter present on the live call.]