Good morning and good evening. Thank you all for joining this conference call for the Earning Results of Samsung Fire & Marine Insurance. This conference will start with your presentation, followed by a dividend Q&A session. If you have a question, please press star and one on your phone during the Q&A. Now we will begin the presentation on Samsung Fire & Marine Insurance's third quarter earnings results of the fiscal year 2024.
[Foreign language]
Good morning. I am Head of IR Kim Jae-woong of Samsung Fire & Marine Insurance. Thank you for joining SFMI's third quarter earnings conference call for 2024. Today we will provide a short briefing on the company's earnings and set aside more time for the Q&A.
[Foreign language]
I will now run through the business earnings of Samsung Fire & Marine Insurance. In Q3 of 2024, SFMI reported consolidated pre-tax income of KRW 743.8 billion, with KRW 554.1 billion of net profit attributable to controlling shareholder, while cumulative net profit came in at KRW 1 trillion 866.5 billion, up 13.8% year over year.
[Foreign language]
Looking at the business breakdown, first, long-term insurance reported cumulative insurance profit of KRW 1 trillion 333.9 billion, up 2.9% year over year, on the back of increase in CSM amortization and steady level of experience variance. Grounded on stronger product competitiveness and proactive channel strategies, we managed to generate steady level of new business CSM, with CSM volume as of end of Q3 recording KRW 14 trillion 181.3 billion, up KRW 878.5 billion year to date.
[Foreign language]
For the auto insurance, on the back of built-up impact of rate cuts and deepening competition for top-line revenue, Q3 insurance profit was KRW 14.2 billion, down 66% year over year. But through managing claims efficiency, cumulative combined ratio came in and reported 96.1%, driving cumulative insurance profit of KRW 163.5 billion, sustaining the profit streak.
[Foreing language]
Commercial insurance revenue posted 10.4% increase on the year, following the growth of both domestic and global businesses. But due to high-risk events, loss ratio increased 5.4 percentage points year over year, driving cumulative insurance profit down by 22.9% year on year to KRW 150.1 billion.
[Foreign language]
Supported by efforts placed behind enhancing operational efficiency with a focus on expanding running yield and increase in valuation gains on alternative investment, investment yield came in at 3.46%, up 0.5 percentage points, while cumulative investment profit was KRW 2 trillion 98.6 billion, up 23.9% year over year. This was a brief update on the company's earnings for the quarter. We will now move on to Q&A.
[Foreign language]. Now Q&A session will begin. Please press star one, that is starring one, if you have any questions. Questions will be taken according to the order. You have pressed the number star one. For cancellation, please press star one, that is starring one, on your phone. [Foreign language]. The first question will be provided by Kim Myung-wook from JP Morgan. Please go ahead with your question.
[Foreign language]
Good morning. I would like to ask two questions. The first one, I see that your company has maintained a very strong solvency ratio, but from the market's perspective, it's very hard to have a visibility into next year regarding the dividend payout. So can you provide us with some guidance as to what your dividend payout picture would look like going forward? And I see that every quarter we've seen the timeline in terms of communication of your shareholder return policy and Value-up disclosures have been changing. When would we be able to learn more about your Value-up disclosures and more specifics on the shareholder return position? Second question is on your channel and product strategy. We see a more heightened regulatory backdrop, and I think that's creating discrepancies and variances across different companies within this industry.
From your company's perspective, if you look out into next year, do you believe that the level of competition in the industry is going to weaken? Also, do you think that this industry backdrop is going to help you leverage your advantage that you have in the market? In that regard, what will be your strategies in terms of channel and product?
[Foreign language]
Good morning. This is the CFO responding to your question on our dividend policy and DPS. Over the years, the company has sustained its progressive shareholder return stance, and that positioning has not changed, and it is staying intact.
[Foreign language]
You specifically asked about the timeline. As we go through our book closing process, basically our timeline will be in step with that process, and once we make a confirmed determination on the level of DPS, we will, of course, come back to you and provide that market disclosure. As mentioned during the previous earnings call, our objective is to move towards the shareholder return rate of 50%, and it is based upon that level that we will be making an appropriate level decision when it comes to DPS.
[Foreign language]
Moving on to the other part of the question on our shareholder return policy. As you've mentioned during the previous earnings call, we are focused on an efficient utilization of the company's capital, and for the benefit of enhancing the corporate value, we have set the mid to longer ROE target and solvency target, and we will utilize the excess capital and use that to expand on shareholder return and also to utilize it for business investments for both domestic and global endeavors. So we are in the process of ironing out the details of the next capital management plan.
[Foreign language]
With respect to the amendment that needs to be made regarding the enforcement decree under the Capital Markets Act in relation to the treasury, the owning of the treasury shares, there has not yet been a confirmed decision or finalization of that enforcement decree. And also, the taxation-related aspects under the Value-up Program had not yet been clearly confirmed. So it is from that backdrop we are at this point very closely revisiting and reviewing different aspects of our mid to longer-term capital planning. So inevitably, we were in a position where we had to slightly adjust the timeline.
[Foreign language]
I just want to, however, highlight that although we are making some additional reviews on the planning, the previous shareholder return stance and position that we have has not changed. The overall direction that we've communicated to you has not changed. Once we arrive at a finalized plan, although I won't be able to, it will be difficult to specify the exact date, we will come back to you with a Value-up disclosure as well as communications with the market.
[Foreign language]
I will respond to your second question. I'm the head of the long-term insurance products.
[Foreingn language]
Now, with regards to the competitiveness and level of competitiveness within the industry, there are both factors, levers that could increase or that could lower the competition level.
[Foreign language]
To be a little more specific, there are some positive levers or plus levers behind the competition, which is the expansion of the GA channel and also the potential entrance of life insurers into the healthcare insurance market. Some of the levers that will bring lower the level of competition will be the guidelines that the authorities have issued with respect to the coverage related to the healthcare insurances.
[Foreign language]
So against this backdrop, I believe that the competitive advantage that SFMI has is in regards to the portfolio of its products and channel.
[Foreign language]
So basically, across the three channels that we operate in, which is the tied agent, the GA, and the digital channel, we will continue to employ the strategy so that we can provide a customized and bespoke product to our customer base.
[Foreign language]
In particular, for the TA and the GA market, I believe that we will be able to drive both the bottom line and top line growth and strategies that will underpin that. And on the digital side, we will be able to make forays into new business areas and focus on acquisition of new policyholders.
[Foreign language]
Last but not least, we will be at the very forefront of the market by introducing innovative products that could create new markets.
[Foreign language]
Thank you. We'll take the next question.
[Foreign language]. The next question will be presented by Kang Seung-gun from KB Securities. Please go ahead with your question.
[Foreign language]
Thank you for taking my question. If you look at the page five of the PowerPoint slide, you see risk-loss ratio. And if you take away the impact of IBNR, you see that the loss ratio trend is going up. I understand that you were able to really defend the experience variance due to the changes and the basis for relating to the date that the accident had actually happened. And so going forward in the next quarter, and I asked this question whether you will be able to further defend your experience variance because your loss ratio is going up. Second question is, the authorities had made changes to the assumption and had issued a guideline. Would like to understand that if you change your lapse ratio model, what impact would that have on your CSM?
Also, for next year, first quarter of next year, when you apply the age group-based loss ratio guideline, how will that impact your CSM and the K-ICS ratio?
[Foreign language]
Hello, this is Jo Eun-young. I'm VP of Long-Term Insurance Strategy. Responding to your first question on the uptrending loss ratio, the loss ratio uptrend is already captured in the previous assumption.
[Foreign language]
So we see a bit of a spike in the third quarter, and this is attributable to one-off high-risk accidents and increases on the non-reimbursement relating to the medical indemnities. We are very closely and continuously monitoring these different indicators and also controlling the possible moral hazard-related claims, and so we believe that we will be able to stabilize the trend going forward. So in terms of experience variance and P&O, we do not predict any big challenges.
[Foreign language]
Regarding the impact from the changes in the guideline, as we've seen last year, whenever there is a specific change in the guideline, for instance, relating to the medical indemnities and any revisions thereof, the financial impact that our company had gained compared to the overall industry was not that significant. So if you look at the lapse-supported product, we also expect the impact to be not great, but as of the end of the year, we are at this point estimating an impact in the range of around KRW 100 billion. In terms of the age group-based loss ratio guideline, at this point, there is no detailed plan. However, based upon what we know, we believe that the impact or more or less is going to be flat as was the case in the previous months.
[Foreign language]
Hello, I am Lee Yong-bok. I am VP of RM. Responding to that part about the impact on K-ICS, as you know, with the changes in the actuarial assumption under lapse ratio, it would need to be captured at the year-end figures, but you also know that there has been a change in the actuarial risk amount related assumption, and putting these together, we believe that the impact by the end of the year on our K-ICS is going to be around 1 or 2%, so not big.
[Foreign language]
As was mentioned by the previous speaker, the specific plan or guidelines regarding the age group-based loss ratio has not yet been finalized, and so we don't believe that, however, this change is going to have a big impact on us. Once we conduct a thorough analysis and assessment, we will come back to you.
[Foreign language]
Thank you. We'll take the next question.
[Foreign language]. The next question will be presented by Park Shin-young from Goldman Sachs Securities. Please go ahead with your question.
[Foreign language]
Thank you. Would like to know regarding your shareholder return objectives. I know that you're currently reviewing this, but I know that your mid to longer-term shareholder return target is 50%, and Samsung Life also has announced about the same level. But considering that SFMI's solvency ratio is much higher, I believe that. Do you have plans to adjust this target upward? And also, as part of your Value-up Program, are you also considering buying back and canceling preferred shares?
[Foreign language]
This is the CFO. On your first question, we've communicated that the excess capital above the K-ICS ratio of 220% will be used as resources for returning back to shareholders or for business expansion investment, both domestic and global. Looking at domestic business, we are looking into and carrying out different processes for additional risk taking. But when it comes to global business, it's very difficult to fix a certain timing.
[Foreign language]
Now, that is the basis because that is the reason why it would be difficult for us to make just apples-to-apples comparison with Samsung Life. I think that it's more important that we go through the process of further refining our capital plan.
[Foreign language]
Regarding the question on canceling of the preferred shares, not recent but some time ago in the past, when SFMI conducted share buyback and cancellation, the common shares as well as preferred shares were redone so in the same percentage.
[Foreign language]
Now, because this may bring about an equity-related issue or fair treatment-related issue regarding the common shareholders, at this point, we are not considering just canceling the preferred shares.
[Foreign language]
Thank you. Moving on to the next question.
[Foreign language]. The next question will be presented by Kim Do-ha from Hanwha Investment & Securities. Please go ahead with your question.
[Foreign language]
Thank you. I have two questions. I see that there were a bit of factors that actually impacted on CSM adjustment for this quarter compared to the previous quarters. Can you elaborate as to what those factors are? And despite the fact that your company usually has good profitability in terms of your auto insurance business, we see that now you're moving towards closer to the break-even point. Is there any talk about adjustment in the auto insurance rates in the industry, or are you looking forward to possibly a rate hike next year?
[Foreign language]
I am Jo Eun-young, VP of Long-Term Insurance Strategy. Responding to the first question on the CSM adjustment, compared to the previous quarter, there was an increase of about KRW 50 billion. In terms of the so-called recurring adjustment items, for instance, the persistency ratio related, the experience variance, it was more or less the same on a Q1-Q basis. But in Q3, there was an update in the expense-related assumptions. Usually, when it comes to the distribution-related cost, the assumptions were adjusted on a yearly basis, once every year, that is. FSS recently, however, came up with the guideline to shorten that cycle, and that had some impact.
[Foreign language]
This is Lee Sang-hyuk, I'm VP of Automobile Strategy. Responding to your second question.
[Foreign language}
As you've correctly mentioned, yes, across the industry, the loss ratio for the auto business is inching up, and the size of profit of the auto insurers is being scaled back.
[Foreign language]
Over the past three years, the basic premium rate has been coming down, and in Q3, there was also an impact of natural catastrophes or natural disasters, which had an impact of increasing the loss ratio. At our company, we're focused on cost efficiency in terms of the expense ratio so that we can minimize any erosion into our profit.
[Foreign language]
In the fourth quarter, we're going to defend well so that we can continue on with our profit-making streak.
[Foreign language]
So it's hard to say whether we can expect a rate hike come next year because across the industry, the market growth rate has been in the negative domain. The profitability has been eroded, so there really is not much leeway and buffer for the companies to handle a lowering of the rates.
[Foreign language]
Regarding the increase in the hike in the premium rate, it's something that requires discussions and consultation with the regulatory authority, and we will see how things go, and that decision most likely will be made at the end of the year.
[Foreign language]
Thank you. Next question, please.
[Foreign language]. The next question will be presented by Seol Yong-jin from SK Securities. Please go ahead with your question.
[Foreign language]
Thank you for taking my question. I see that there is a bit of a loss from disposition of financial products on the investment side. Can you elaborate as to what that is? And also, I see that there is a bit more increase in the income from the insurance financing products. Can you also explain what that is?
[Foreign language]
Yes. Responding to your question, I am Choi Won-jae from the Financial Planning Team. On a cumulative basis, there has been a marginal increase from the disposition of the financial products. Last year, we shifted our bond portfolio, and we incurred some of a loss from disposition of those bonds. This year, we continued to shift our bond portfolio, which generated loss, but compared to last year, we were able to downsize on the size of that loss. So on an all-in-all basis, there was a disposition gain on a year-over-year basis, an increase of KRW 150 billion. So there was no particular or extraordinary factor that impacted this figure.
It was that based upon the interest rate environment and the fixed income market situation, we adjusted on the size of the bond portfolio shift, and we were able to reduce the amount of loss that was incurred in the process.
[Foreign language]
You also asked about the income relating to the insurance financial product. This is attributable to the differences in the accounts. I believe that with regards to the specifics, I think it will be best if we could take this offline and we'll provide you with more details later.
[Foreign language]
Thank you. We'll take the next question.
[Foreign langauge]. The next question will be presented by Choi Hee-won from Morgan Stanley. Please go ahead with your question.
[Foreign language]
Thank you. My question relates to your medical indemnity product and the potential expenses that may arise from the onerous contract. What is the loss ratio trend like for each of the generation of medical indemnity products? And the second part of this question is that the government is undertaking healthcare industry-related reform measures, and they are trying to improve on the guidelines regarding the medical indemnity product. If there are certain guidelines that are either changed or newly introduced, what impact do you foresee will happen on your business?
[Foreign languagee]
Yes. I will respond to your question on medical indemnity loss ratio. I'm from the long-term product team. Back in 2022, there were certain revisions to the guidelines on the cataract procedures, and that had an impact of lowering the loss ratio, and as we come into 2023, the loss ratio trend was flat.
[Foreign language]
For each of the generations, from Generation 1 to 4, the losses are above 100% level.
[Foreign language]
Particularly for Generation 3 and 4, there was delay in rate hike, which created losses.
[Foreign language]
We are looking into key levers behind the loss ratio, creation of the loss ratio, and we are putting in efforts to talk to the authorities regarding reflecting these factors as a way for us to get an increase in the rates.
[Foreign language]
Responding to the question about improvement in the overall medical indemnity-related guidelines.
[Foreign language]
I understand that the authorities' approach in improving the overall regulatory basis for the medical indemnities is to normalize the non-reimbursable medical items, basically doing away with and eliminating the unnecessary healthcare and medical services.
[Foreign language]
The financial authority is holding the insurance reform council meetings with a view towards stabilizing the medical indemnity market, and the industry is also participating in that effort.
[Foreign language]
If there are no more questions, we would like to end the third quarter 2024 SFMI's earnings conference. If you have more questions that you would like to ask, please contact us at the IR team. Thank you.