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'll begin the presentation on Samsung Life's First Half of Fiscal Year 2026 Earnings Results.

Good afternoon, everyone. This is Sun-jung Kim, Investor Relations part leader. Thank you for joining us today for Samsung Life's 2026 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 the domestic and overseas market conditions and operating environment. Let me now hand over the presentation to our CFO, Mr. Wan-Sam Lee.

Good afternoon, everyone. This is the CFO, Wan-Sam Lee. I would like to sincerely thank our investors and analysts for taking the time out of your busy schedules to attend our first half 2026 earnings presentation call. Let me start with our key financial results and major business topics for the first half of 2026. Our consolidated net profit for the first half grew by 35.8% year-on-year to reach KRW 1.9 trillion, demonstrating our solid earnings capacity. Insurance Service results declined by 35.9% year-on-year due to higher operating variance despite stable CSM profits. On the operating expense side, we recognized a one-off expense of KRW 83 billion in the first half, mainly due to higher wages, including a temporary increase in retirement benefit provisions following the outcome of Samsung Electronics [indiscernible] lawsuit. On the claims payment side, the negative operating variance widened from a year ago due to increase in medical service usage. Given these one-off factors, it seems inevitable to achieve growth for the annual insurance profit on a year-on-year basis. Nonetheless, we will make every effort to secure at least KRW 3 trillion in new business CSM each year, driven by our strong portfolio and sales capabilities across our exclusive and nonexclusive channels. In addition, we'll improve our efficiency metrics, such as our loss ratio and expense ratio with the aim of turning around our insurance profit to show growth going forward. We have seen our first year loss ratio improved compared to the beginning of this year. Thanks to our newly established framework to rigorously manage our first year loss ratio by improving our product structure and stricter underwriting standards. We will further strengthen our efforts so that these initiatives translate into an improvement in the overall loss ratio. Investment profit surged from a year ago, supported by higher dividend income and stronger consolidated and equity method earnings from subsidiaries, such as Samsung Securities and Samsung Asset Management. Notably, while still modest in absolute terms, earnings contribution from the Thailand and China business have grown at an accelerating pace of growth. That said, amid heightened volatility in financial markets, including interest rates and equity prices, hedging losses on variable insurance within investment income experienced a slight increase. We run a hedging program to effectively manage our capital and earnings volatility associated with the minimum guarantee options embedded in our variable insurance products. Going forward, we are operating an internal task force, testing out different strategies for different market conditions to achieve the optimal strategy in periods of extreme market volatility, such as this year. New business CSM recorded KRW 1.7 trillion in the first half, growing by 20% year-on-year. We are well on track to achieve our annual target of KRW 3.2 trillion. Taking profitability and market conditions into account, we plan to continuously secure stable new business CSM by implementing a flexible portfolio strategy between the highly profitable health insurance and the whole life insurance solely available to life insurers. For our CSM balance, the reflected key assumption changes in the second quarter in accordance with the financial supervisory authorities guidelines. These changes include applying conservative loss ratio assumptions to new riders, a more defined segmentation of riders and adjusting expense ratios assumptions to reflect inflation and changes in cost drivers. As a result, there was a one-off CSM adjustment. We expect additional guidelines changes in the fourth quarter as well, but expect the impact to be limited as most of the guidelines have been reflected as of June end. Based on this, we will pursue sustainable growth of improving our CSM balance going forward. Amid a tightening regulatory environment such as the full implementation of the GA 1,200% commission rule and the cap on total sales commissions, the environment for the insurance industry has shifted to prioritize profitability and sustainability over top line growth. We anticipate these regulatory changes will foster healthy change in the midterm by promoting qualitative growth across sales channels and through a more rationalized expense structure. Accordingly, we plan to reinforce our efficiency-focused sales strategy by further strengthening the competitiveness of our exclusive channel and through qualitative growth of our GA channel. Our exclusive channel has continued to grow steadily with a net increase of approximately 2,100 agents year-to-date. Our exclusive agents are educated through systematic training programs and generating new business performance based on the highest retention rates in the industry. We will further differentiate the competitiveness of our agents by providing comprehensive support across the overall sales process, including AI-based sales tools and product education. For the GA channel, we continue to strengthen our portfolio around high-margin whole life and general health products while enhancing AI-enabled sales support systems and expanding partnerships with large GA firms. In particular, under a healthier market environment following the introduction of the GA 1,200% commission rule, we will continue to expand our market presence by strengthening sales infrastructure, including broader support through AI tools. Next, turning to the capital adequacy. Our K-ICS ratio as of June recorded 208%, while Tier 1 Capital K-ICS ratio remains stable at 177%. Going forward, we will continue to maintain industry-leading capital adequacy by securing high-quality new business CSM, improving operating efficiency and rigorous ALM management centered on Tier 1 Capital K-ICS ratio. In the second quarter of 2026, the surrender value reserve amounted to KRW 3.1 trillion, up by KRW 1.4 trillion from KRW 1.7 trillion at the end of first quarter. Approximately KRW 0.5 trillion of surrender value reserve is generated on a recurring quarterly basis due to new business sales. In addition, increased market volatility resulted in an additional impact of approximately KRW 0.9 trillion due to the valuation difference between the reserves and liabilities of our variable products. However, this increase largely reflects temporary effects from heightened market volatility. If market conditions, including equity prices and interest rates, stabilize going forward, we expect the pace of increase in the surrender value reserve to gradually moderate. We also have sufficient distributable earnings, and therefore, the increase in the surrender value reserve is expected to have a limited impact on our shareholder return policy. Regarding the shareholder return, [indiscernible] maintain a foreseeable dividend policy under the principle of increasing shareholder dividends at a rate above the growth rate of recurring profits. We will maintain a consistent shareholder return principle, unwavering from short-term earnings volatility while strengthening market confidence as a dividend growth stock by improving the quality of earnings and enhancing capital efficiency. In addition, we will continue to explore ways to effectively utilize surplus capital, including expansion into new business. Additionally, we understand that our investors are very interested in the timing of our value program announcement. Taking into account measures such as treasury share cancellation plans, we are required to make the announcement before next year's Annual General Meeting of Shareholders. We will do our best to make the announcement as early as possible. Despite domestic and overseas economic uncertainties, Samsung Life will continue to pursue sustainable growth based on industry-leading sales competitiveness, asset management capabilities and solid capital foundation. Going into the second half, we will focus on delivering tangible results toward our goals of securing more than KRW 3.2 trillion in new business CSM, achieving double-digit growth in annual earnings and enhancing shareholder returns based on these results. We will now move on to the Q&A session, and we will do our best to address your questions.

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

[Interpreted] Yes. I would like to ask 2 questions. First is about the high net worth individuals, the baby boomers who are approaching retirement age. Obviously, over the last decade or so, real estate property prices have continued to rise over the past year. The cost has delivered a very strong performance, which -- and it is fair to say that the high net worth asset base is probably much bigger. So in terms of your addressable market, how much further upside do you see in terms of the addressable market over the next 10 years? What is your outlook in terms of further upside. And also, I wonder if the company has already established a future strategy on securing future earnings. If so, if you could provide more of a quantitative outlook, I would appreciate it as well. Second question is on risk management. The 10-year KTB is actually yielding at above 4%, with rising interest rates, of course, this is associated with higher risk of lapses, also added pressure in terms of liquidity management as well. So can you share the latest trend in terms of the lapse rates that you have been seeing? And what are your stress scenario assumptions? And also please share your plans in terms of liquidity management. Also, we have seen a significant impact on your financials from the volatility from the equity market, also from the variable account reserves as well. So if you could also share some measures by the company to mitigate against that kind of financial impact or volatility, I'd also appreciate it.

[Interpreted] This is [indiscernible], Head of Marketing. So yes, as you have said, there is a very high concentration of well, particularly among those aged 60 and above. And for all of Korea based on our market intelligence, we believe there is about 470,000 individuals, high net worth customers with assets above a certain level of that pool above KRW 1 billion in financial assets -- of that pool of actually are existing Samsung Life policyholders or our customers. So again, this is based on financial assets only, by the way. And you will know that Samsung Life among the insurance companies in Korea has a very unique position that we have a family office within our organization. So our family offices caters to the ultra-high net worth individuals providing not only whole life or other insurance-type products, but a different lineup of other services, well, including beneficiary certificate or funds, also trust consultation as across our SP centers that are located in 8 key geographies. So obviously, for the security firms, their focus in terms of their business is financial asset appreciation to grow well for the banks, it is to maintain that well. And as an insurer for us, actually, the transfer of that financial wealth or asset is very key. So through our whole life product mechanism, the transfer of wealth is our area of focus. So we obviously have a very extensive customer base of customers who hold either our whole life or other term insurance policies. And the total amount of death claims paid out actually is quite expensive at around KRW 60 trillion, the payable amount. So we are targeting those individuals to expand into the trust business. We have been promoting a service, which is interesting. Their deaths cover claims to trust. So this actually provides for assurance in terms of the smooth transfer of the death benefits to the designated beneficiaries, and this is a key part of our new business strategy to expand into the trust business. . And so already, the AUM is now at around KRW 800 billion to date. We expect to exceed the KRW 1 trillion mark within this year. The nearest competition of the second ranked insurance company in Korea, is very far behind with AUM of just KRW 100 billion as we widened the gap. For WM, we are also doing quite well. If required, we'll try to create another opportunity where we can share more materials and present to our analysts.

[Interpreted] This is the CFO. Let me add just a little bit. Yes. So we have a very clear recognition that the high net worth market is, in fact, growing, and in terms of the underlying infrastructure to cater to this segment, and to manage it well, I would say that we are, by far, the most -- the top performing in the industry. We can leverage our very strong exclusive channel and we are focusing on continuing to grow the asset consulting capacity of our channel. And we are also expanding beyond just whole life, particularly to single payment type products and policies that have underlying needs within the high net worth market.

[Interpreted] Yes. This is [indiscernible], Head of the RM team. Let me take your second question on liquidity management. So as you said, with rising interest rates and also an abrupt increase in share prices, it is true that we also have seen a slight increase in our lapse ratio as well. However, although it did go up in the first half in particular -- into the second half of the year amid widening volatility in the equity market, we have seen recovery more towards stable trends. But just as a baseline, we continue to track on a day-to-day basis, our asset versus liability just in terms of the size we continue to forecast the gap in terms of the balance. And we have identified different crisis scenarios and identified the minimal level of liquidity that must be defended in every crisis scenario. Well, based on our management criteria, we are under normal conditions at the moment. But early -- well, starting 2 years ago, we actually have been enforcing tighter liquidity control aligned to Stage 1 in the scenario analysis. And we are continuing to carry out scenario analysis, assuming very high risk contingency situation, where there may be an abrupt increase in lapse, similar to what we saw previously during the Asian financial crisis. And we are testing on a quarterly basis, if we have the means within Samsung Life to cover against that kind of liquidity risk and exposure. . So our conclusion to date is that we do not see any source of major concern. However, with the market volatility as wide as it is now, intend to continue very tight management based on a conservative stance.

[Interpreted]Yes. This is [indiscernible], Head of Asset Management. Let me take your third question. So in the first half, certainly, with very significant widening of market volatility, we have seen elevated hedging-related loss. So obviously, the hedging was for the purpose of hedging against the risk associated with minimum guarantees that were provided as an option on our variable account policies. If we had not hedged against that risk, potentially, there could have been an impact of around KRW 1 trillion to our P&L. So obviously, we believe we need to continue to hedge against this potential risk. . But because this should not be an added burden to our financial stability, we are running our own task force on variable product hedging, specifically to analyze the root cause of the recent developments and to develop numerous hedging tools or means so that we can minimize the error rate. And we intend to refine our analysis and mitigating measures further so that we can be more defensive against market volatility, such as we saw in the first half.

[Interpreted] Yes. This is the CFO. I would just like to add that we actually have been moving quite proactively in terms of managing our liquidity particularly given the wide market or widening market volatility. We actually have been trying to tap a lot of the widely available cash assets that are circulating in the market by developing certain products that can cater to not only retail or individual customers, but to corporate customers as well. And we have started the sales of these new products in July, and we will continue with this type of product-driven strategy as well.

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

[Interpreted] Yes. I would like to ask a question on investment and then dividends. So I'm looking at a separate basis numbers or it may not match exactly with the numbers that you are looking at. But in terms of the variable hedging loss that you mentioned, what is the exact size, just in terms of the special account, I think it's more around KRW 4 billion. So is that consistent with the total amount? Or is there another portion that also impacts your general accounts -- sorry, KRW 84 billion. . Second question, regarding the dividends. I think on numerous occasions, the CFO has said that while you're not able to immediately share, still, you'll try to address the request, the numerous quest to try to share -- to give more color as quickly as possible. That being said, a lot of time has passed and still we don't have -- we have not received that kind of information. So will you at least be sharing that kind of update at least within this year? If you can share. I don't think any of the investors are expecting any increase in the DPS per se, but we are interested whether you have plans to share some of your special earnings. So could you explain further?

[Interpreted] Yes, this is Kim [indiscernible] from the and management team. So in terms of our variable hedging loss, actually, the hedging is done using fees that are received through our general accounts. So in fact, that means all hedging rated losses are specific to our general accounts only. And the hedging-related loss actually totals about KRW 85 billion.

[Interpreted] Yes. This is the CFO. Let me elaborate on our dividend policy. Also the Samsung Electronics-related special dividends that you asked about. So I'd like to seek your understanding in advance that I am not able to share the detailed numbers or the exact timing today. So we obviously are targeting a long-term shareholder return target of 50%, driven by robust earnings growth and consistent increase to our dividend per share. And we continue to work hard to drive for that kind of consistent and incremental improvement. . So as you are well aware, we have been growing our dividend per share at an annual growth rate of above 16%, and we have committed to continuing to expand our dividend per share above the rate of growth for our recurring earnings. So we are committed, again, to doing our best to anchor ourselves as a very stable dividend growth share. . And then regarding Samsung Electronics disposal gains, also possibility of special dividends. So when we were determining our dividend policy earlier in 2025, we committed to expanding dividend per share above ordinary growth, and also at the time of disposing -- regarding disposal gains from SEC shares, we also determined that they would be included in the pool of funds for dividends and that policy remains unchanged today. And regarding special dividends regarding SEC shares, I do know that this is a matter of great interest, but it's very difficult for me to share any specifics in terms of what exact time line we expect also the size given the different factors that may lead to changes -- change in conditions. And so once there is more clarity in terms of the special dividends in terms of the size and likely timing, then -- and on the assumption that we are maintaining our K-ICS ratio above a certain adequate level. We remain committed to continue to improve our DPS year-on-year.

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

[Interpreted] Yes. So my first question has to do with the surrender value reserves. So you did elaborate on the variable accounts breakdown. So I'm interested in the surrender value reserves as well. Earlier this morning, there was a non-life company that reported their earnings. So I think in terms of the absolute size of the accumulation, perhaps it is quite similar, 80%, but perhaps the breakdown or the composition might be different, which is why I asked. So you talked about an ordinary level of about KRW 500 billion in surrender value reserves. And so what are the factors? So maybe operating expense overruns relative to the budget. But then beyond that, what other factors may have an impact? And second question is regarding the 1,200% rule that will be implemented starting next year, I believe, where an aggregate cap will be in for starting 2027 with the government also talking about possible sanctions being [indiscernible] as well. So assuming the current level, if the rule is adopted, to what extent will your new business acquisition expense be reduced? If you have some internal numbers, I'd like to hear .