Good morning. I am Jae Hong Kim, Head of the IR Team. Thank you very much for joining the first quarter 2023 earnings conference call. Today, we will begin with Q1 business highlights, which will be presented by our CFO and EVP, Jun Ha Kim, after which we will have the Q&A session with answers provided by the management team. The entire session, including the Q&A, will last a total of one hour. Since this is the first earnings call since the implementation of the IFRS 17 standards, comparison with past figures may not be that evident, and these figures and measures and indicators are subject to change in the future. I ask for your indulgence. I will hand it over to our 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 Q1 2023 earnings of SFMI. Under the new accounting regime, Q1 2023 consolidated pretax profit was KRW 859.3 billion, net profit attributable to majority interest reported KRW 612.7 billion, which is up 16.7% versus previous year's KRW 524.9 billion. Due to the accounting standard changes, simple comparison with past earnings disclosed may be a bit far-fetched. Compared to KRW 448.1 billion of majority interest net income in Q1 2022, which is based on the previous accounting standard, the increase was 36.7%. Next, moving on to Q1 performance breakdown by each business. First, long-term insurance reported insurance profit of KRW 420.9 billion, which is up 38.9% year-over-year.
CSM volume as a source of future profit was KRW 12,350.1 billion as of the first quarter end of 2023, growing KRW 148.8 billion versus end of year 2022. Particularly noteworthy is protection new business. By way of new competitive product release and through a sales strategy around high CSM-yielding products, such as age, term, and lapse-supported types, monthly average premium income was KRW 14.7 billion, up 8.8% year-over-year, while conversion multiple was 154.4 times, an improvement of 3.1 times year-over-year, with Q1 new business CSM reporting KRW 678.3 billion. Looking into efficiency indicators, 13th month and 25th month persistency ratios fell year-over-year, while 37th month persistency was 64.1%, improving by a large margin of 17.3% year-over-year.
We expect this uptrend to continue on a yearly basis. For the long-term risk loss ratio, while there is continuing trend of improvement from medical indemnity line rise in social activities following the reopening, we saw a rise in loss ratio from death, diagnoses, and surgery coverage, bringing risk loss ratio slightly up by 0.8 percentage points year-over-year, reporting 88.9%. In Q2 and beyond, SFMI will continue to improve its new business portfolio and also to prevent inflow of badly performing policies and to improve efficiency of our value in force through the adoption of corporate-wide growth strategy across product, efficiency, and distribution channel. We will be expanding the company's basis for future earnings. Next is on the auto insurance business.
Despite premium cuts in February and increase in direct channel mix due to stronger sales support for each distribution channel and rise in per vehicle premium, auto insurance revenue in Q1 came in at KRW 1,388.8 billion, which is marginally up on a year-over-year basis. On the back of base effect, in terms of rise in accident rates following the reopening since the pandemic, Q1 loss ratio was up 2.3 percentage points year-over-year to 75.9%, with the insurance income posting KRW 106.5 billion, which is down 27.8% year-on-year. Compared to pre-COVID levels, we are seeing steady and good level of profit.
Notwithstanding the market headwind characterized by deepening top line competition, premium cut, increase in cost, and the full impact from endemic transition, we will continue to seek institutional improvement to rationalize business environment while also driving innovation in claims structure and business productivity, so that we may continue to generate insurance profit for the auto business for three consecutive years. Next is on general P&C Insurance. General insurance profit was KRW 57.6 billion, up 40.9% year-over-year. General insurance was driven by expansion of specialty and maritime insurance markets and global business growth, which led to Q1 revenue of KRW 339.4 billion, up 8.6% year-over-year. Q1 loss ratio declined 4.6 percentage points year-on-year to 58.4% on the back of increase in net premium earned from higher revenues and decrease in high risk accidents.
The company will identify risks and new markets in the domestic market and overseas in order to drive top line growth. By strengthening underwriting policy and optimizing our reinsurance policy, we will continue to seek steady source of income. Next is investment. Under our efforts to lift the running yield and as we were nimble in responding to market developments, Q1 investment yield reported 3.4%, improving 0.7 percentage points year-on-year. Investment profit was KRW 591.7 billion, up 10.6% year-over-year.
We expect financial market in the second quarter to continue to be mired with global financial system uncertainties, concerns over full-blown economic recession and property market slump. Although such external uncertainties are expected to continue through rigorous risk monitoring, we will control asset quality, secure high-yielding assets and make our portfolio more efficient, thereby improving the investment returns.
Even in the midst of continuing extrinsic challenges, SFMI introduced a new accounting regime quite steadily and generated great performance in the first quarter.
Even in Q2 2023 and onwards, although financial market uncertainties, economic recession concerns and difficult operational backdrop are expected to continue, we will actively respond to such changes to continue fundamental growth and drive efficient innovation so as to focus on mid to longer term profit stability.
Although there may be some confusion within the industry from the adoption of new accounting regime and KICS in the early stages, we will work to provide comfort to market as we go through quarterly accounting closings. Through these efforts, we will do our best to drive differentiated performance and enhance shareholder value in 2023. Thank you.
We will now start with the Q&A. 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 star and number one. For cancellation, please press star two, that is star and two on your phone. The first question will be presented by Shin Young Park from Goldman Sachs. Please go ahead with your question.
Good morning. I am Shin Young Park from Goldman Sachs Securities. My question, first one relates to your CSM. If you look at your CSM movements last year, there was about KRW 2.5 trillion of CSM adjustments. Considering the fact that the changes or the difference between the expected and actual was not that big, I would like to understand what the key details or the reasons were with regards to this extent of KRW 2.5 trillion adjustment for under CSM. Another question is on your new CSM multiple. Compared to previous year, we have seen improvement this year, but still it is lower compared to your peers. What is your projection regarding this multiple trajectory going forward? How do you think that this would actually play out in terms of deepening, further deepening competition in the market?
Are you already seeing such signs? Second question is on your dividend. In the market, we think, and there are people are saying that because your surrender value provisioning has actually gone up, that not actually is not going to, of course, directly translate into increase in dividend. I would like to understand as to when you see an increase in earnings, how much of that is going to come under and be provisioned under surrender value provision, and how much would that be included in distributable income?
네, 첫 번째 질문에 대답해 드릴 Yong-bok Lee, VP of Long Term Insurance Strategy입니다. 첫 번째로 말씀하신 CSM 조정 항목은, 에 대해서 말씀을 드리면, 예, 2021년부터 2022년 매년 저희가 이제 경험 통계를 기준으로 가정이나 반응의 변동을 산출하고 있습니다. 이 부분에 있어서 효율 개선이 된 부분을 반영해서 그 CSM을 조정을 하였고, 특히 2021년 같은 경우나.
The first question, I will respond to your question. I am Yongbok from long-term insurance strategy team. When it comes to adjusting for the CSMs, what we do is based off of the experience and statistics of year 2021 and 2022, we will make adjustments to the assumption and RA. When we identify the improvement in the efficiency, we will take that and use that to adjust the CSM.
특히 이제 실적 반영된 부분에서 말씀을 조금 더 드리면 손해율 경우에는 2021년과 2022년을 봤을 때, 예, 손해율이 한 3.1% 개선된 부분을 반영했다고 말씀드릴 수 있습니다.
Tying that with the performance for this quarter, for the loss ratio, there's been about 3.1% improvement over 2021 and 2022, and that improvement was what's reflected in the numbers.
말씀하신 부분에서 신계약 CSM 배수에 대해서 말씀을 하셨는데 저희 자료에서도 보시듯이 신계약 CSM 환산 배수는 계속적으로 개선이 되고 있습니다.
Your second question related to the new business CSM and the conversion multiple. You can see from the documents that we've previously circulated, currently the multiple is showing an improvement trend.
그 옆에 또 자료에도 보시듯이 신계약 CSM이 높은, 수익성이 높은 새만기라든지 무해지에 대한 비중이 계속 증가하고 있고, 이를 통해서 그 향후 지속적으로 CSM 환산 배수는 개선될 걸로 말씀드릴 수 있습니다.
Also, as you can see from the presentation that we shared, the new business CSM, the higher yielding CSM products, such as the age term and lapse-supported products, % of these such products are increasing, so the mix is going up. We project that going forward, we will see the conversion multiple show an upward trajectory.
추가적으로 말씀을 드리면 그 일분기에 CSM이 이천이백육십일억이지만 일월부터 삼월까지, 예, 계속 증가하는 추세를 보였고 삼월 같은 경우는 이천육백억 정도 수준이라고 말씀을 드릴 수 있습니다.
Another point I would like to add is that if you look at Q1, CSM size is KRW 226.1 billion, but that's been on an upward trend if you look at from the month of January up to March. As of March, we have seen KRW 260 billion.
또한 사월도 뭐 지금 다 감마감, 마감이 된 숫자는 아니지만 지금 삼, 일분기는 십오보다 높은 십칠 이상의 수준을 나타내고 있고, 향후에도 지속적으로 그 환산 배수는 상승할 것으로 예상을 하고 있습니다.
For the multiple, although we haven't yet closed the April account in Q1, basically we've seen it move from 15x-17x. We think that going forward, the multiple will also continue to improve.
상무입니다. 저 CFO입니다. 두 번째 질문 답변드리겠습니다. 1분기 해약환급금 준비금은 KRW 259.1 billion입니다. 대략 IFRS4하고 IFRS17 손익 차이가 해약환급금 준비금 정리매하고 유사한 수준이다 이렇게 말씀드릴 수 있을 것 같습니다. 다 아시겠지만 어제 FSS 주관으로 CFO 간담회에서 5월 중으로 이제 계리적 과정이나 이런 부분에 대해서 기본적인 가이드라인을 좀 주겠다는 얘기를 했습니다. 물론 이제 구체적으로 어떤 가이드라인 내용까지는 FSS에서 얘기하지 못했지만 어쨌든 이달 중에 가이드라인 나오고 FSS도 분기 결산을 해나가면서 예실차 분석을 통해서 회계 제도에 어떤 안정적인 운영, 이런 쪽에 좀 초점을 맞추는 상황이기 때문에, 지금 당장 저희가 올해 배당 정책을 어떻게 운영하겠다라고 말씀드리기는 좀 어려운 상황입니다. 저희도 마찬가지로 분기 결산을 해나가면서 구체적인 배당 정책에 대해서 좀 검토를 할 예정입니다. 다만 말씀드릴 수 있는 부분은 어쨌든 저희가 추후 당 배당금은 계속 안정적으로 우상향하는 쪽으로 이제 노력하겠다. 이제 여기까지 말씀드릴 수 있을 것 같습니다.
This is the CFO responding to your second question on Q1, reserve for surrender value that currently is around KRW 259.1 billion. Basically, the size of that is about the same as the difference in the profit between IFRS4 and IFRS17. Yesterday, there was an FSS-led CFO meeting, roundtable meeting. The regulators have said that within the month of May that they will come up with some sort of a guideline with regards to the actuarial assumptions. Of course, at this point, the details of that guideline have not yet been announced. We believe that within the month of May, we will be able to get our hands on that guideline.
FSS, I understand, is also focused on a very stable operations of this new accounting standard in terms of the analysis of the changes between the expected and the actual figure, for instance.
At this point, I think that it is too premature for us to put our foot down in terms of our dividend payout policy for going forward. Having said that, as we go through our quarterly numbers, we will review in detail our dividend payout plans and policies. I can tell you for certain that the company will endeavor to make sure that our DPS continues to go on an upward trend. Thank you. We will take the next question.
The next question will be presented by Byung-gun Lee from DB Financial Investment. Please go ahead with your question.
Thank you. I am Lee Byung-gun from DB Investment & Securities. Thank you for a good performance and good earnings this quarter. Based on the comparative disclosure or comparative statements that we've seen previously, the net profit was KRW 1.2 trillion, pretax was KRW 2 trillion, and including the CSM adjustment, there was about a KRW 4 trillion increase, so we could expect a better performance for this quarter. Having said that, I would like to understand whether we will continue to see earnings seasonality in your earnings even under IFRS 17. You would probably know how things would go for Q2, Q3 and Q4.
In light of the full year, movement in terms of your earnings, do you think that there will be a quarterly seasonality, and if so, where would that be attributable to, is my first question? Second is you've also have posted improvement in investment profit. Some of the reason behind that is because of the better running yield. Had there been any impact from FVPL on your PNL? Would like to know if you could guide us as to any volatilities or any variabilities under the FVPL impact?
I am Lee Jong-hwan, responding to your first question from Corporate Management Support.
Just to provide you some color on the overall direction, if you will compare last year with this year, key characteristics of the P&C industry is that usually the first half of the year, the numbers are good, and then as you enter second half, due to, for instance, heavy rains and heavy snowfall, the numbers would tend to deteriorate. The difference between last and this year is that last year in Q one, COVID was very severe, whereas in Q three and four there were more natural catastrophes. This year, with the end of the pandemic and as we experience reopening, the activity levels have gone up. Overall trend has been quite different. Another thing for this year is that, yes, our Q1 earnings have been quite good.
As of now, the Q2 numbers seem that they will also be quite good. However, yesterday, as was mentioned regarding some of the very details with respect to what will be retroactively assessed for Q1 numbers with the changes in the assumptions that was talked about, is currently being discussed with the regulators, the FSS. As we move into endemic, we would have to wait and see to be a little more clear as to the direction after the second quarter earnings release.
Hello, I am Won-jae Choi , VP of Finance Planning. I will respond to your second question on the PL assets. As of end of March, our FVPL asset is KRW 7.8 trillion, which is 10% of our AUM.
This year in Q1, we were able to further lift our investment yield from previously 2.6% to 3.4%. Looking at the FVPL assets in Q1, the market backdrop was such that the share prices were going up and interest rate was coming down. Some of the securities and bonds that we have under FVPL, it's at the impact that was attributable to changes in gains, valuation and also from gains from disposition. Just to be a little more specific, in Q1, the rise in the investment yield of 30 basis points is attributable to higher valuation gain from FVPL assets. In terms of the outlook, as of Q1, if you look at the mix or the exposure to equity securities and bonds, the mix is going to go down.
Going forward, we are going to try to increase the exposure to some of the products, such as the corporate financing fund and PEF, which have less of a correlation to the movement in share price and in interest rate. The size of the FVPL asset, inevitably due to the changes in the accounting standards, would obviously go up. Basically, we would focus on making investment into high yielding investment vehicles. Going forward, compared to this quarter's sensitivity, we will be able to lower the sensitivity of these assets against the share price movement or interest rate movement.
Next question, please. The next question will be presented by Aditi Joshi from J.P. Morgan. Please go ahead with your question.
Yeah. Thank you very much for taking my question. Aditi from JP Morgan. I have two questions. The first one is related to the free surplus calculations. Under the KICS space, the economic capital base looks very strong. I'm just wondering that how do we calculate the free surplus from here? Would it be fair to say that the excess capital, which is above the 150%, of the required capital, shall be assumed to be the free surplus? My second question is related to the auto combined ratio. When we look at the first quarter's auto combined ratio, it was pretty low, around the 92% level. Can we expect that this level of auto combined ratio will be maintained in rest of 2023?
If so, can you please provide us, your thoughts and on the reasons why you think so, please? Thank you.
Yes. I am Choi Byung-goo, VP of Actuary or RM team. Under KICS, if you look at this figure on a 2022 basis, the available capital has really gone up quite significantly as compared to RBC. The main reason behind the increase of available capital is due to mark-to-market valuation of liabilities. I think the question was whether the, what is in excess of that 150% require capital, whether that can be considered to be just free surplus. I think that was your question. Currently, under the RBC regime, it is 150%, and we expect that the regulators will keep to that level even under KICS.
Having said that, our solvency target basically is based off of ORSA. We have an internal solvency, I guess standard that is slightly different from what is required under KICS. Thank you. Hello, I am Lee Sang-hyoun, VP of Automobile Insurance Strategy. The Q1 combined ratio was quite good. Compared to last year because during the first quarter, there was a spread of the Omicron variant, the loss ratio itself was very much pressured down. Compared to that figure, on the surface, you may think that the loss ratio this quarter does not look that favorable, but no, basically, the numbers that we've posted this quarter has been quite healthy.
In looking at Q1 with the reopening after the pandemic and also more people going and engaging in outdoor activities with the coming of the spring season, the accident rate on a year-over-year basis went up by 4.4%. Loss ratio did creep up. Due to economic depression and also positive impact feeding in from improvement in the institutional base, our claims loss payment is maintained at a steady level. However, the uncertainty levels are still quite elevated. As you know, auto insurance is a cyclic or seasonal business. It will be impacted by seasonality. In the second half, we experience greater volatility. On the back of higher inflation, the repair unit costs have also risen, which also works as a burden for the business.
In order for us to respond better to such uncertainties and reduce the impact and to achieve three consecutive years of auto business profit, we are going to focus on really providing differentiated pricing points and products and also improve on our claims structure and improve on the productivity as well. We will endeavor our best to make sure that we create such reasonable business environment so that we may continue on with a solid earning trajectory. Thank you. Next question, please.
The next question will be presented by Seung-gun Kang from KB Securities. Please go ahead with your question.
Yes, we've all been pre-making preparations for IFRS 17, and it's quite unfortunate to see that yesterday, you know, they come up with or they mentioned that there's gonna be another adjustment in the assumptions. I just think that's a bit unfortunate, a difficult environment for us. Anyhow, my first question is on a consolidated basis, the OCI figure on a cumulative basis, Q on Q increased by KRW 987 billion. Would like to understand, you know, the liability and the asset impact. I mean, what changes were there on both of the liability and asset side that explains for such increase?
Second is in terms of the CSM movement, we were actually expecting a big CSM adjustment at the end of the year. It seems there's going to be such adjustments on a quarterly basis. Would like to know whether that is the case and why has there been a CSM adjustment this quarter?
The first question that relates to a specific number. We do not have that with us at this point. We will provide that to you through the IR team. Yes. This is Yong Bok Lee, VP of Long Term Insurance Strategy. Regarding CSM movement and the adjustment that we make, yes, it can happen at the end of the year, for instance, changes in the assumptions. It will also happen during the quarters.
This quarter, the CSM adjustment that was made was attributable to the decline in the market interest rate. There's been changes therefore on the RA, and that is what is reflected in the CSM adjustment. Thank you.
Well, that brings us to the end of the Q&A session. Once again, thank you very much for joining Samsung Fire & Marine Insurance's first quarter 2023 earnings conference call. Thank you.