Good morning, and good evening. Thank you all for joining the conference call for the earnings results of Samsung Fire & Marine Insurance. This conference will start with a presentation, followed by a 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 Second Quarter Earnings Results of the fiscal year 2024.
Good morning, I am Jun Ha Kim , head of the IR team. Thank you for joining SFMI's financial year 2024 first half earnings conference call. We will begin with the first half business highlights and performances, which will be presented by our CFO and EVP, Jun Ha Kim. After the presentation, we will have a Q&A session, and your questions will be answered by the management team. The entire session, including the Q&A, will last a total of one hour. Now, I will hand it over to CFO Jun Ha Kim for the earnings briefing. Good morning, I am Jun Ha Kim, CFO and EVP of Corporate Management Support Division. I will present on the first half 2024 earnings of Samsung Fire & Marine Insurance.
Consolidated pretax profit for the first half of 2024 was KRW 1,723.8 billion, with net profit attributable to majority interest reporting KRW 1,312.4 billion, up 8.2% versus last year. Moving on to details of each business, first, looking at the long-term insurance. Despite deepening market competition for new businesses, particularly for healthcare insurance, we launched new and competitive products and took a strategic approach towards the GA channel, thus driving KRW 18.3 billion of monthly average sales for protection new premium, growing 24.3% on-year, through which we were able to expand market dominance.
Due to proactive strategies taken against the market, CSM multiple fell 1.4 times to report 14.9 times, but new business CSM reported KRW 1,638.3 billion, up 13.6% year-over-year. CSM volume as of the end of first half was KRW 13,955.3 billion, up by KRW 652.5 billion versus end of last year. Despite marginal decline in experience variance due to increase in CSM amortization gain, first half insurance profit reported KRW 904.8 billion, which is up 5.3% year-over-year, sustaining an uptrend.
In the second half of the year, we will strengthen competitiveness of product with high CSM margin and focus on persistency, loss ratio and expense ratio and efficiency improvements in order to sustain growth of CSM volume, which is source of future profit. Next is auto insurance. Despite market competition deepening following introduction of comparison and recommendation services by platform companies and recognition of profit-making business, first half auto insurance revenue was KRW 2,796.9 billion, sustaining last year's level, driven by differentiated marketing strategies for each channel and target customer segment.
Expense ratio also saw a year-over-year improvement of 0.3 percentage points through innovating our claims structure and business productivity. But due to the cumulative impact of rate cuts, loss ratio recorded 78.5%, up 2.2 percentage points versus last year. As a result, first half insurance profit was down 26.1% year-on-year, reporting KRW 149.3 billion.
We will focus all our efforts behind loss management and strengthen claims efficiency in order to continue on with four consecutive years of insurance profit, even amidst seasonal volatilities created in the wake of natural disasters. We will also enhance non-price competitiveness so as to continue to broaden the base of customers.
Next is General insurance, driven by growth from both domestic and overseas businesses. First half insurance revenue was KRW 800.2 billion, up 12.7% year-over-year. But on the back of increase in high loss events, loss ratio recorded 60.8%, up 5.2 percentage points year-over-year, driving insurance profit to KRW 116.5 billion, which is down by 18% versus the previous year.
In the second half, we will continue to diversify our portfolio to push ahead with growth, underpinned by risk management, and maintain a stance on profit-centric pricing and underwriting, while bolstering activities around accident prevention and safety management, which will yield steady bottom line.
Thanks to efforts placed behind improving investment efficiency, aimed at enhancing the running yield and higher valuation gains from alternative investment on the back of anticipation around rate cuts. First half investment yield was 3.5%, up 0.36 percentage points year-over-year, while investment profit based on the AUM was KRW 1,425.4 billion, which is an increase of 17.9% year-over-year.
We expect financial markets in the second half to experience uncertainties such as real estate, project financing issues in the domestic market, as well as rising global geopolitical tensions and deepening macro volatilities. We will thus prepare against shifts in the investment environment and liability position through reviewing and adjusting our portfolio strategies and through rigorous risk monitoring to ensure sound asset quality management, so as to ultimately drive steady stream of enhanced profitability.
In the midst of continuing uncertainties and deepening market competition, SFMI is actively responding to changes that are occurring across all of its business domains, and thanks to such efforts, we are able to sustain superior performances across sales, profit, and customer. In the second half, we will continue to widen the gap in terms of competitiveness of our core business through bold innovations and focused capabilities. We will discover new engine for growth aligned with changes brought on by megatrends in demographics and those seen in the insurance market. We will establish mid to longer term business plans, one that will bring us sustained growth and shareholder value enhancement. Through all these efforts, in FY 2024, we will drive fundamental transformation and innovation aimed at resilient growth, secure steady future profit stream, and enhance shareholder value. Thank you.
With that, we will now begin the Q&A session. I would like to ask that you ask no more than two questions per person. Now, Q&A session will begin. Please press star one. That is star and 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 two, that is star and two on your phone. The first question will be provided by Myung-Woo Kim from J.P. Morgan. Please go ahead with your question.
Thank you for taking my question. I want to ask you two questions. Last week, the regulatory authority announced their disclosures regarding the roadmap on the Insurance Reform Council. It included a lot of information, including some enhancement measures for your lapse-supported products. Just would like to get your thoughts on at a high level as to what are some of the key points from a regulatory perspective that we in the market should be mindful of? And what potential impact would that have on the company going forward? Second question is, your solvency ratio compared to the beginning of the year has significantly improved. Would like to get some color in terms of the timeline, when can we actually get an update on your position on use of your excess capital and using that for enhancing your shareholder return?
When can we get your plan on the overall Value-up Program?
I will answer to the best of my ability. Regarding the Insurance Reform Council, it is progressing in two tracks. One is, from the IFRS application perspective, to bring out some delayed items, one direction is there. The second is, regarding the supplementary benefits, whether to link actual expense claims or not, regarding products, for the purpose of targeting consumer benefits, it is progressing in two tracks.
Hello, I am Eun-Young Cho. I am the VP of the Long-Term Insurance Strategy Team. I will respond to your first question about the Insurance Reform Council. It is at this point. It actually has two tracks at this point. The first one is how to make the guidances and the guidelines under the IFRS more uniform. The second aspect focuses on the overall insurance industry. For instance, adopting IT systems for claims processes, and also how to improve on the products to better benefit the consumers.
In terms of the possible financial impact, when we think about the product design, structure, basically with regards to the enhancement of the overall medical indemnity product, a design improvement as well as certain guidelines that will place a tap on excessive competition about the amount of this, the amount of coverage, we believe that will have some impact, especially also in terms of making the claims process more convenient when it comes to the medical indemnity claims. That will actually enhance consumers' convenience, and that will have some positive impact on the company's P&L. Also, there has been a very strong move to curb down on excessive treatment and excessive medical healthcare services provided, that, because that places significant burden on overall social cost.
So we believe that certain countermeasures that focus on this issue will have a positive impact on the companies, insurers, co-insurance companies, that is, their P&L. And as you've also mentioned, regarding the lapse-supported product, there will likely be some adjustments in the guidelines regarding the assumptions on the lapse ratio. This, at this point, is an agenda item that is under discussion, and the impacts, there will be some positive and some negative impacts all blended together. So we would have to wait and see as to what specific financial impact this will have.
This is the CFO. As I've mentioned during the first quarter earnings release, the company has set mid- to long-term ROE target, as well as solvency target, and we have mentioned that we would use the excess capital for the purposes of enhancing shareholder return and making investments. That basic position has not been changed. But regarding the Value-up program and disclosures thereof, there are certain issues, such as the issue of becoming a subsidiary vis-a-vis Samsung Life, with regards to the treasury owning of the treasury shares. And with the enforcement decree to come into effect in the near future, under the Capital Markets Act, if one holds a treasury share above and beyond 5%, it requires a BOD approval in terms of the purpose of that treasury shares and the plans thereof.
So because of these issues, which have these guidelines and regulatory backdrop, which has not yet been confirmed, there's been a slight delay in terms of our setting up and confirming our capital plans as well as the Value-up disclosures. So once we have the decision, we will, as soon as possible, communicate with you.
Thank you. We will take the next question. The following question will be presented by Jun-Sup Chung from NH Investment & Securities. Please go ahead with your question.
Thank you for taking my question. I have two that I would like to ask. First question is, compared to your peers, I see that SFMI has increased your own shareholder equity and also the impact on the other AOCI has not been that big. Would like to know as to what the duration gap between asset and liability is, and also what would be your interest rate sensitivity going forward? Second question is, on your auto insurance. It was expected, but I see that the profitability from auto insurance has declined, and in the second half, it would not be easy for you to increase the auto insurance premium rates. How, therefore, going forward, are you going to manage your auto insurance business?
Hello, I am the RM Team VP. I am Yong-Bok Lee. Responding to your question, in terms of asset and liability duration, as of the second quarter, asset is 4.2, liabilities is 3.9, so there is a duration gap of 0.9. So at this point, ALM, we are in an over-matched position. So going forward, if the interest rate starts to go down, considering this over-matched position, we expect the duration gap to narrow. In terms of the interest rate sensitivity, on the liability side, there are very complicated elements that we need to be mindful of, for instance, minimum guarantee. So we will get back to you with more specific details later. I am Sang-Yeob Lee, VP of Automobile Insurance Strategy, and I will respond to your question.
As you've mentioned, if you look at the greater auto insurance market, the combined ratio has been going up, and over the past three years, there's been a premium cut, and the overall prices, the inflation on the auto market has been going up as well. So setting aside all the external factors which we cannot control, we've been putting in efforts to improve on the cost base within the company. In terms of the product, by coming up with the product portfolio and adjusting the rates, we've been really expanding the high quality policies, so that we can onboard high quality and low risk portfolio. And so in the first half, we were able to drive some performance out of that effort.
Second point is that we have also provided support for consulting a sales system as well as the vehicle platform. And through these efforts, what we are trying to do is to onboard and acquire as much as, as many high quality contracts as possible, the policies as possible. Through these efforts, we were able to differentiate ourselves out in the market. And also, in order to secure cost competitiveness, we've been rigorously maintaining and managing the claims management, as well as auto automation, introducing automation to the property damages related claims, and improving on the overall workforce structure and focusing on our efforts and improving the expense ratio.
Through all of these efforts, we will try to differentiate our positioning in the market, and also, make sure that the loss ratio does not shoot up. We will limit and cap the loss ratio and continue to secure cost competitiveness.
Regarding the increases of the loss ratio, we also need to take a look at the cases that we've seen in other global markets, and therefore, through the association, the Auto Insurance Association, we have expressed the importance of maintaining the auto insurance premium at a steady level, and we will try our best to make sure that that is reflected on the cost and in a phased manner.
Thank you. Next question, please.
The following question will be presented by Hye-Jin Park from Daishin Securities. Please go ahead with your question.
So, from the second half, do you plan to manage margins a bit? In fact, this time both new sales and margins have all dropped again, and the supervisory direction seems to be continuously coming out in the direction of preventing excessive GA competition right now. So, for the second half, how do you plan to position in the health insurance market a bit? If you could tell me this plan, I would be grateful.
Thank you. I just have one very quick question. In the first half, I think the company focused on expanding and broadening your market dominance. So in the second half, I would think that you would have to pay more attention to controlling the margin, because if you look at your new business premium, the sales and the margin, it had gone down. And I think the authorities' direction forward is to prevent excessive competition in the GA channel.
So what is going to be the company's positioning in the second half regarding the healthcare market?
First half, we made a lot of efforts to expand market dominance, and I believe we achieved the corresponding results. Yes, I am Byung-Young Cho, I'm VP of Corporate Management Support Team. Yes, in the first half of the year, we did place a lot of efforts behind expanding our market dominance, and we believe that we have also gotten good performance out of that. I think the key that really underpins that expansion of market expansion is the sources of our future profit, which is the total CSM volume and growing that. So in the second half of the year, we think our approach, the company's approach forward, is still going to be expanding market dominance.
As you've mentioned, we believe that including the over competition in the GA channel, so overheating of the market, we expect there to be a consensus formed under the Insurance Reform Council, and our company would also set our position in accordance with that. Regarding the positioning on the healthcare product. In expanding the market dominance, this product takes up a very important position. So, under the aim of expanding the company's overall CSM volume, we will develop new products and as well as provide new coverage.
Next question, please.
The following question will be presented by Byung-Gun Lee from DB Financial Investment. Please go ahead with your question.
Thank you. I am Byung-Gun Lee from DB Financial Investment. First of all, congratulations on good earnings results. Moving on to my two questions. The first one is it's a minor question, but it's on your asset management and investment. Unlike other companies, I see that there's been some increases on your net profit, fair value based, and also increases in the overseas fixed income instruments, but not that big of an increase on the domestic side. Would like to gain some insight as to what the positioning of the company is in regards to these investment approaches. And also under K-ICS, although the market risk is not at a level which is worrisome at this point, if we take a look at the market risk metrics, basically, you know, what does that signal vis-a-vis your asset management or your investment approach?
Second question is on the increases or the reserve for the lapse reserve. Some of the companies, including for the retroactive treatment, if you apply IFRS by the, if it would be by 2027, the increases will not be, as people are saying, they're projecting that it's not gonna be as steep, but I think that projection is overly optimistic. I know that this is not gonna be an issue for SFMI, but would like to understand what the company's projection is with regards to the rise in the reserve for lapse.
Hello, I am Won-Jae Choi, VP of Finance Planning. If I understood your question correctly, I think the first question had to do with our fixed income assets, FVTPL, under FVTPL and the risks under K-ICS, and I will provide answers to those questions. Under FVTPL line item, it's KRW 10.9 trillion, and fixed income, or bonds is 2.1%, which is about KRW 700 billion, and others would include instruments like MMF at about 18% at KRW 2 trillion.
As we communicated previously, in terms of our FVTPL direction, our position is not to significantly increase our exposures to bond or listed equities, and within that scope, at our working level, teams, based upon the view of the bond team, the fixed income team, we do categorize some of the, market-based, bonds when under which we are managing, but the size of that is not going to vary too much in the future. And in terms of our bigger exposure to overseas fixed income, bonds, the split between domestic and overseas exposure basically is determined based upon the interest rate and the domestic market, as well as the yield in the overseas market and the cost that's required for FX hedging. So we employ a very flexible strategy.
So at this point, even if the exposures that we have and the amount of global bonds that we hold may be slightly higher, it's difficult to— It's impossible to predict what's gonna happen next quarter, there is up and down over quarters. Second question regarding the market risk under the K-ICS regime. In terms of our asset management strategy, our positioning is to gradually diversify into alternative investment portfolio and have more diversified impact on the portfolio. And in so doing, the market risk will be used up more under K-ICS. But as much as we remain, we need to use a bit more market risk, we will also, at the same time, endeavor to find assets that will give us higher yield.
Yes, I am Eun-Young Cho, VP of Long-Term Insurance Strategy. You are correct. Compared to what we had initially projected, the reserve for the, the lapse has gone up. That is correct. The reserve—t he reason why the reserve went up is because with the application of IFRS, compared to our initial projection, the new business CSM had expanded, much higher than was expected, and we've seen a higher growth and increases in the CSM. So if such market backdrop continues, I believe that such an uptrend is going to also be sustained. As you have correctly mentioned, we do not think that there is big possibility that from a short term, that this is going to narrow.
Thank you. Next question.
The following question will be presented by Hee-Yeon Lim from Shinhan Investment & Securities. Please go ahead with your question.
Thank you. My first question relates to the relationship between your new business and the CSM. You've emphasized how the CSM has been uptrending quite robustly. If you look at the factors that contribute to CSM on the new business side, I would think that there is a profitability, profitability and on, from the value and growth, from value in force, it would be retention that would be important. So out of these three elements, profitability, growth, and retention, what's the priority of the company? And in the first half, I think you were able to really drive new business growth thanks to low margin coverages. I believe this is going to continue in the second half. So can you provide some color as to what the current new business trend looks like for July and August?
My second question relates to your next year's strategy, because for 2024, your earnings was really good. I would think that there's going to be greater uncertainties in terms of the earnings for next year. And so what is the company's strategy for next year business? If you could provide your positioning on this, that would be quite helpful. And with regards to all these efforts, such as Insurance Reform Council and new medical related packages that's coming out, it will bring both opportunities and threats. So what's the company's take on the potential impact from these industry movement? Second is with the overheating of competition in the GA channel, that obviously you will have some positive impact on curbing down on your expenses, but it will also may curb down and weigh down on your new business. What's your measure against this?
Responding to your question about our CSM volume expansion, all of our priorities are aligned with that objective, and in order to increase and expand on CSM volume, we're focusing on efficiency management and growing the new business CSM volume. On your second question, yes, in the second quarter, because of the adjustment in the risk rate, that had a negative impact on our CSM multiple. But we've already lined up products and have already released high protection products that provide additional healthcare services, and that impact will come through in the second half. That will help us further prop up and bolster our profitability and also provide bigger customer satisfaction. On the GA competition side, basically, our approach is similar. We are focusing on price competition based expansion of the volume.
By providing specialized products for different customer segments and channels, we're going to rigorously control and manage our new business CSM margin. From a mid to longer term perspective, we will also focus on efficiency management and including new premium, new businesses. We will also be managing the CSM volume from our value in force contracts. So in terms of efficiency management, to be a little more specific, we are doing what we've done in the past, managing and controlling for the loss ratio and persistency ratio and endeavoring to onboard more high quality policies and also, manage any moral hazard issues.
And also, we have made some adjustments to the overall product structure so that we give out more discounts to the policy holders when there has not been any accident, and giving out more benefits, if the customers or the policy holders maintain their policy over a longer period of time. And so we are continuously focusing on expanding our value in force in order for us to secure that additional CSM. Responding to your other question, I'm the CFO. As you have mentioned, next year, there is going to be higher uncertainties coming out of the different activities and decisions made by the Insurance Reform Council, as well as various different healthcare reform-related initiatives.
In terms of our long-term business, which is our core. We are focused on growing the CSM volume, and with that aim in mind, we are at this point monitoring and checking various different aspects of the business. And we are, as we speak, in the process of coming up with the business plan for the next year. So we have started off that business planning process. Regarding on top of the market leading strategy that we have envisioned together with what the head of the long-term business has just mentioned, our efforts behind improving the efficiency, I believe that these two will form the basic pillars of our next year's business plan. We will do our best continuously to grow and expand on the CSM volume without undermining any value.
Thank you. Next question.
The following question will be presented by Tim Wong from HSBC. Please go ahead with your question.
Thank you for taking my question, and thank you very much for good results. I have two questions. One is on value-up, the second is on auto insurance. You said that it's too early to share with us any specific timeline for the announcement of your Value-up program, but can we at least look forward to an interim disclosure before the end of the year? And you've previously communicated that you will use the excess capital above the 220% on Value-up program and global investment. But since global investment may take up quite big portion of that resources, can you just carve out the specific amount that you will be using for the shareholder return purposes?
Second question is, I guess, a very minor question, but recently there's been a significant EV vehicle related fire at Incheon. What impact does that accident have on your company? And just overall, does EV products give you good margin, and what's your strategy on EV?
Yeah, good. Responding to your first question, this is the CFO. You asked about a more specific timing for the Value-up program. I do understand that the market is looking forward to that disclosure, going forward, but we are in need of reviewing various different aspects before we come to a decision regarding the timing of the disclosure. Typically, an interim disclosure will be a disclosure that come in advance of the main disclosure, talking about the timing of that following main disclosure.
We have not yet made any decision at this point as to the interim disclosure or whether or not to do an interim disclosure, nor the timing regarding that disclosure. In terms of but I can tell you that our disclosure timeline and our disclosure stance will be completely in line with the government guidelines and the government policies that as they finalize. In terms of shareholder return, whether we could just give you a carved out information regarding that, basically, our shareholder return rate is mid- to long-term, 50%.
Yeah, I am Sang-Yeob Lee from Automobile Insurance. From the recent EV fire incident that took place, the amount of claim filing that we received is 360 cases. So the projected loss amount is about KRW 2.2 billion. We are in the process of processing these claims, and I just want to make sure that this is not the confirmed loss amount. I say that because the liability for this fire has not yet been determined, there's investigation that would need to go forward, and based upon the result of that investigation, we could even resort to claiming for indemnity. Secondly, on our EV related revenue.
To simply put, EVs entail high level of loss ratio because EVs by character have long mileage driven, which means higher accident rate. Compared to internal combustion engine vehicles, the premium, therefore the pricing, is 1.4 x higher, and we have different accident rate tables for different car models. And at this point, we are therefore focusing on making our portfolio more high quality.
And also, we will use a strategy where we enter into partnership with EV OEMs who show good loss ratio profiles so that we could improve our portfolio. Thank you.
Thank you. Next question.
The following question will be presented by Sinyoung Park from Goldman Sachs. Please go ahead with your question.
Thank you. Just one clarification regarding the value-up timeline, I just want to be clear on this. So are you saying that you will make the disclosure before the end of the year? That's my question.
So the government's value-up disclosure related guideline is actually a recommendation of voluntary disclosure. So before we finalize on our capital plan, it will be difficult for us to, you know, fix a date. But once that is confirmed and finalized, we will come back to you ASAP.
Well, thank you very much. This ends, Samsung Fire & Marine Insurance's first half 2024 earnings release. If you have any additional questions, please do not hesitate to contact us at the IR team. Thank you.