Today's session will begin with an overview of the 2024 fiscal year's business performance, followed by a discussion on the 2025 business strategy. We'll then proceed with the Q&A session. The session is expected to last approximately one hour. With that, I will turn it over to the CFO for the presentation.
[Foreign language]
Good morning. This is CFO Young-min Koo of Samsung Fire & Marine Insurance. I would like to take you through our 2024 business results and key strategies for 2025.
[Foreign language]
In 2024, despite heightened market competition and environmental changes, SFMI recorded insurance profit of KRW 1.8893 trillion, investment profit of KRW 845.3 billion, delivering pre-tax profit of KRW 2.7445 trillion, and net profit attributable to majority interest of KRW 2.0736 trillion, which is a 14% increase YoY. In 2024, we became the first non-life insurer in Korea to exceed net profit of KRW 2 trillion.
[Foreign language]
To now go into detail performance by business line, first, the long-term insurance recorded cumulative insurance profit of KRW 1.5776 trillion, which is a 2.5% YoY growth, thanks to increased CSM amortization and stable experience variance management. In particular, our continuous strategic focus on stronger product competitiveness and active channel response successfully generated stable new business CSM on a full-year basis, increasing our CSM balance to KRW 14.0739 trillion, which is a KRW 771.1 billion increase versus end of 2023.
[Foreign language]
Next, for auto insurance, despite the impact of cumulative rate cuts and intensified sales competition, thanks to the expense reductions through greater claims management efficiency and also stronger online channel competitiveness, combined ratio came in at 98.3%. Full-year auto insurance profit was KRW 95.8 billion, maintaining a profitable business structure.
[Foreign language]
Next, in P&C insurance, both domestic and overseas business delivered growth, increasing P&C insurance revenue by 10.4% year over year. However, due to the impact of large loss events, the loss ratio increased by 3.4 percentage points YoY, and full-year insurance profit decreased by 13.9% YoY to KRW 175.7 billion.
[Foreign language]
Next, in the asset management side, thanks to the continuous change of our bond portfolio in pursuit of higher running yield and interest income generated from higher yielding asset investments, as well as valuation gain from alternative investment assets, our investment yield was 3.22%, which is a 0.42 percentage point gain from previous year. Investment profit was KRW 2.6193 trillion, which is a significant 19.7% increase YoY.
[Foreign language]
That was a brief review of our 2024 results, and now I would like to share SFMI's key strategies for this year.
[Foreign language]
First, to start with the market outlook for each business line in 2025, for the long-term insurance, both non-life and life insurers are expected to increase market competition around healthcare insurance and also compete more fiercely to gain dominance in GA channels. Also, effective capital management to enable continuous CSM growth would become more important this year.
[Foreign language]
For auto insurance, this year pressures over profitability are expected to intensify given the burden of cumulative rate cuts combined with higher inflation. For P&C insurance, domestic direct written market growth rate is expected to decrease due to intensive revenue competition. On the asset management side, with concerns over deteriorating asset value continuing, market volatility is expected to increase due to domestic and external uncertainties.
[Foreign language]
SFMI is prepared to proactively take on these market changes by having each of its business lines meet bold challenges with the aim of delivering healthy growth and differentiation befitting its position as the number one player.
[Foreign language]
First, in long-term insurance, we will increase our market power by developing market-leading, innovative products and strengthening our competitive edge in sales channels, while also maintaining a balanced improvement in efficiency indicators to create a positive feedback cycle driving growth of CSM, which is the source of future profits.
[Foreign language]
For auto insurance, we will focus on sustaining solid profitability through process automation and stronger cost management while offering differentiated service experience and value to widen the customer base for the entire company.
[Foreign language]
For P&C and global business, while focusing on preemptive loss control, we will also lead growth in commercial insurance market, including the uncovering of new growth areas. While we will drive diversification of regions and line of business through Samsung Re established in Singapore, we will also expand business opportunities through wider collaboration with various partners to deliver meaningful growth in our global business this year.
[Foreign language]
On the asset management side, we will emphasize thorough risk management to address possible financial market volatility and assets with loss potential, and also focus on building a high-quality portfolio well-diversified across asset classes to continuously enhance our investment yield.
[Foreign language]
On January 31st, through its Corporate Value Enhancement Program public disclosure, SFMI announced its implementation plan for sustainable value enhancement, including a policy for increasing shareholder return. In implementing its value enhancement program, we have set a KPI of 220% as the internal management target for progressive enhancement of capital efficiency going forward. We also set 11% to 13% as the sustainable ROE target, which we aim to maintain stably.
[Foreign language]
First, we will progressively increase total shareholder return to around 50% step by step and cancel treasury shares that exceed 5% in order to increase the sustainability and transparency of our shareholder return policy. Assuming an equal cancellation of treasury shares over a four-year period, it is expected that 2.5% to 3% of total issued shares will be retired annually. So for 2025, this year, we plan to cancel 1.36 million common shares and 90,000 preferred shares within April after the upcoming shareholders' meeting.
[Foreign language]
Second, as the number one player in the industry, we will enhance the competitiveness of each of our core lines of business to continuously lead the market. Third, we will drive global business expansion through Samsung Re, Lloyd's Market, and other partnerships, while also expanding our business boundaries by generating meaningful growth in new areas such as mobility and healthcare, with the aim of securing new engines to drive sustainable future growth and to take our organization to the next level.
[Foreign language]
In 2025, we are fully committed to delivering another year of top performance by further strengthening our competitive edge in core businesses while also endlessly searching for new growth engine opportunities to make our business fundamentals even stronger and to grow together with our shareholders. Thank you.
[Foreign language]
That concludes the overview of our financial performance. We will now begin the Q&A session. Our executives from various business divisions are also present to respond to your questions. To facilitate and ensure a smooth Q&A session, we kindly ask that each participant limit their questions to a maximum of two at a time.
[Foreign language] Now Q&A session will begin. Please press star one, then star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For translation, please press star two, then star and two 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]
I have two questions. First question is about shareholder return policy. When we look at other insurance companies around the world that have similar credit ratings with SFMI, they usually provide 70% to 80% of their profits to shareholders in the form of shareholder return. I also know that back in 2010 to 2012, as part of its shareholder return increase policy, there was a time when the company had given treasury shares to its shareholders, accounting for about 30% of its profits.
As part of this Corporate Value Program, the company has announced that it will be using a K-ICS solvency ratio of 220% as its target that it would reference, and that it would eventually also pay out or return around 50% of its profits in the form of shareholder return. Going through these activities, this would have a positive impact on the overall capital ratio as well.
Now, against this entire backdrop, the question is, in addition to the current capital policies the company has, is the possibility of issuing or distributing new treasury shares to shareholders also on the table of potential shareholder return measures that the company could consider using? Second question is about management compensation. The question is, what are the key metrics or indicators that the company ties to management compensation? In addition to the value program, there were many changes to the accounting system applied to insurance companies through recent years.
Also, the new solvency scheme applied to Korean insurers have introduced many new indicators, and the company has been announcing various new financial and solvency-related indicators. I'm just wondering, among these various indicators, what are the key indicators that are tied to your management compensation? I'm asking because I don't think the company has publicly disclosed or announced specifically what are the key indicators among the various financial and solvency-related indicators that are directly tied to management compensation.
[Foreign language]
This is Seong-woo Hong , the VP of Corporate Management Support. I'll answer both of your questions. First, regarding the shareholder return, as we mentioned and announced as part of our Corporate Value- up Program, we are planning to progressively increase shareholder return in the mid- to long -term, up to 50% of our profits by mid- to long- term, 2028. What we will do after that is still being discussed internally within the company, and the company is willing to consider measures including buyback of additional treasury shares.
Second question, about the KPIs and management compensation, the management compensation are determined by KPIs that are tied to the profitability of the business, and of course, profitability of the business is eventually tied to various other indicators, including ROE performance, which is connected to shareholder return.
[Foreign language] The following question will be presented by Choi Hee-won from Morgan Stanley. Please go ahead with your question.
[Foreign language]
I have two questions. First question is about the potential of the company becoming a subsidiary of Samsung Life. I know that Samsung Life itself has not announced the details of its shareholder return program, and that does have an impact. I also know that the company has announced that its cancellation of treasury shares and other value programs are decisions that the company will make independently.
But I'm just wondering whether the company has internally had any review of the possibility or what would happen if Samsung Fire & Marine Insurance becomes a subsidiary of Samsung Life in terms of not only the insurance businesses, but also in terms of regulatory differences or decision-making processes. Has the company looked into the potential changes or impact it would feel if it becomes a subsidiary of Samsung Life? What are its current assessments on those questions?
Second question is about guidance about CSM or new business volume growth this year that you're expecting, as well as the amount of CSM growth that you're expecting from new businesses. Also, when we look throughout the year until the year end, what kind of factors do you think would have either a positive or negative impact on the CSM multiple this year?
[Foreign language]
This is here for Young-min Koo. I'll answer your first question. You've asked whether the company has reviewed the potential impact that it would feel if it becomes a subsidiary of Samsung Life. As you have mentioned, Samsung Life is still looking into the question and has not announced its position yet. But even if we become a subsidiary of Samsung Life in terms of our operation or governance, there would be no change.
As we do currently, we will operate the company around the current governance structure, around the BOD, the Board of Directors. I would say that we do not expect any changes in terms of business operation or governance.
[Foreign language]
This is Eun-young Cho, VP of Long- Term Insurance Strategy Team. I'll answer your second question. Regarding the market this year, we are not expecting the new business market to increase versus last year given the fact that there are increases in no-lapse policy premiums this year. However, based on the market competitiveness that we have gained in 2024, we are targeting to keep our top line revenue similar to the previous year.
[Foreign language]
In terms of the CSM, the profitability, there was the change of the assumptions of the no-lapse policy December last year. Based on that, the new premiums, the increased premiums would kick in from April this year. Because of that, we're expecting the multiples to decrease in first quarter, but then to recover after April. Overall, therefore, we will not expect an impact on profitability on a full-year basis.
[Foreign language] The following question will be presented by Lim Hee-yeon from Shinhan Securities. Please go ahead with your question.
[Foreign language]
A follow-up question to the previous answer that you provided. To start with my first question, I noticed in Q4 there was a large negative claims experience variance. In Q4, or at least versus the previous year, 2023 Q4, can you give us a bit more detail of why there was this large negative claims experience variance in Q4? Second question is I also noticed that there was around negative KRW 700 billion of CSM adjustments that were taken.
Previously, the company's position was that even if the actuarial assumptions are changed regarding the no or low lapse policies, it would not have a large impact on CSM adjustments. But it seems there was this large KRW 700 billion adjustment. Can you break down this large KRW 700 billion CSM adjustment that we see? My follow-up question to the previous answer was that for outlook for this year, the answer was that even though the new business CSM multiple may fall in Q1 this year, after April there will be recovery. Overall, you're not expecting a large change.
Can you just clarify what is the reference point of this not being a large change? Is it that multiples will be similar to what you saw in Q4 this year, or is it going to be more similar to what the company saw in 2023 given the fact that there's a large range between the two?
[Foreign language]
To answer your first question about the shrinking, the decrease of our experience variance in Q4, it's mainly attributed to the increased loss rate. There were increased events in Q4, including mortalities and day-rated, as well as medical indemnity events increasing. That is the main reason for the decreased experience variance.
[Foreign language]
In terms of the CSM adjustment, there was around KRW 800 billion of CSM adjustment taken in Q4. Out of that KRW 800 billion, KRW 300 billion is the running normalized normal adjustments that we would take. About KRW 500 billion is attributed to change in actuarial assumptions.
[Foreign language]
Of that KRW 500 billion, KRW 170 billion is attributed to the guideline reflecting the guideline regarding the lapse rate. So KRW 170 billion is around KRW 30 to KRW 40 billion larger than what we have previously provided as guidance. That is mainly because there was an increase of new business revenue during that period.
[Foreign language]
The remaining KRW 330 billion of the CSM adjustments attributed to assumption changes are mainly related to reflection of experience. The loss rates and termination rates have had a negative impact. That is the main explanation for the additional CSM adjustments related to assumption changes.
[Foreign language]
To answer your third question, when we say that we are not expecting much change than before, the target is to maintain our profitability similar to 2024. Even though, as I mentioned, we are expecting the profitability to slightly decrease in Q1, we are expecting that to start to recover from April. We are targeting to maintain our profitability to level similar to 2024 through portfolio management and also coverage management.
[Foreign language]
Thank you for your question. We'll take the next question.
Foreign language] The following question will be presented by Kim Do-h a from Hanwha Investment & Securities. Please go ahead with your question.
[Foreign language]
First is about CSM and the second is about the announcement that you made yesterday about selling your holdings in Samsung Electronics and what will you do with the proceeds from that sale. The first question about CSM is I'm noticing that the CSM amortization rate continuously is falling. Is this because structurally the maturity of your policies are getting longer, that your portfolio is actually getting longer in terms of the policies and business? If so, is it correct then to assume that your amortization ratio structurally will continue to decline?
I also have a follow-up question to the CSM adjustment that you broke down. You said that of the KRW 800 billion CSM adjustment, KRW 300 billion is sort of the normal running. Then you also broke down the KRW 500 billion that is attributed to assumption changes. But when you broke down the KRW 500 billion of assumption changes, you also attributed KRW 300 billion of that KRW 500 billion to changes in lapse rates, persistency, and also loss rates.
But I'm assuming that the KRW 300 billion that you attributed as being the normal CSM adjustments as also including your actual experience lapse rates or persistency rates and loss rates. I'm just wondering whether this is also sort of that these actuarial change-based adjustments that you take on your CSM is also sort of the normal ongoing process as even though we bring in new business, the existing in-force business lapses because the policyholder is lapsing on that one to take on a new policy.
That this feedback between new business, in-force business, and lapse rates is also going to be sort of an ongoing process resulting in adjustment of the CSM on both levels. Second question about the proceeds of the expected sale of your Samsung Electronics holdings. Is the company planning to use the entire proceeds from that sale for shareholder returns and dividends?
[Foreign language]
To give you the answer for the CSM amortization rate, the amortization rate is determined by various factors including the inflow size of new business, the size of our inflow business, and various assumptions. Based on our conversion timing, we saw the overall rate approaching 11% over the long term.
[Foreign language]
At the end of last year, we applied the newly introduced lapse rate assumptions, which had a direction that was different from the existing assumption directions that we had. That's why we're expecting that the CSM amortization rate would decrease by about 0.3 percentage points next year.
[Foreign language]
That said, at the current time, we do not expect there to be additional changes to the amortization rate going forward.
[Foreign language]
Regarding the CSM adjustment, what you have described is correct that on the running basis, on a running normalized basis, we do recognize around KRW 200 billion of CSM adjustments on a quarterly basis in the first half. So on the two first half quarters, it's around KRW 200 billion. But on the two second half quarters, normalized, we recognize around KRW 300 billion of CSM adjustments per quarter.
Also, for the CSM adjustments for the third and fourth quarter, the impact or the expense changes also are reflected in the KRW 300 billion that I mentioned. So of that KRW 300 billion, the adjustments that are related attributed to lapse rates are around KRW 200 billion.
[Foreign language]
Another reason why there was the increase of another way of explaining the increase of CSM adjustment in 2024 is the increased competition in the GA market. In 2025, therefore, we have set improved persistency, improved efficiency as a major task. We're actually seeing already in January improvement versus first quarter of last year.
[Foreign language]
To answer your second question about the company's plans of using the proceeds from the sales of the Samsung Electronics shares, as you know, there were accounting standard changes and therefore no longer would these disposal gains be accounted for in the current period as the current period's profit and loss. It's actually recognized as retained earnings. That said, the company will look into the possibility of using it for distribution.
[Foreign language]
Thank you for your question. We'll now take the next question.
[Foreign language] The following question will be presented by Won Jae-woong from HSBC Securities. Please go ahead with your question.
[Foreign language]
I have two questions. First question, once again, is about your announcement to progressively cancel your treasury shares and the potential of the company becoming a subsidiary of Samsung Life. You have mentioned that whether you become a subsidiary of Samsung Life or not is a decision for Samsung Life to make. Setting aside that, if the two companies become a parent and subsidiary structure, that entity would have large control dominance over the market, which I understand is therefore subject to review by the Fair Trade Commission, the competition authorities.
Is that also something for Samsung Life to decide and make a judgment call on and would therefore have no impact on your plans to continuously cancel treasury shares? I just want to hear your perspective on whether there is the risk of the subsidiary structure becoming subject to the authorities, competition authorities review or not, and whether that would have impact on your treasury share cancellation program. Second question is about the CSM.
You've mentioned that you're expecting your new business CSM to increase this year versus last year given the fact that the economic situation is not very good. You've, I think, mentioned that you're expecting the CSM multiple to decrease. Where are you planning and how are you planning to increase your new business revenue this year? Last year, it was mainly by pushing and increasing your market share on the GA channel.
Will you be mainly relying also on increased market share and pushing on the GA channel this year as a way of driving up your top line? Specifically, how are you planning to increase your top line this year?
[Foreign language]
To answer your first question, this is CFO Young-min Koo about the implications, regulatory implications of a process of us becoming a subsidiary of Samsung Life. As we mentioned, it is up to Samsung Life to decide whether we become a subsidiary of Samsung Life or not. My understanding is that if Samsung Life does decide to go through with it, there are various reports and filings that it has to make to the various financial authorities, but that would also be something for Samsung Life to discuss and decide.
[Foreign language]
To answer your second question about CSM, as you mentioned last year, our focus was more on growing volume, especially around the GA channels, but this year we will be shifting focus more towards our direct channels and focus more on our profitability.
[Foreign language]
A part of the impact from the change of assumptions that were taken at the end of 2024 was attributed to our increase of GA channel share. That's why in 2024 we will be focusing more on generating profits by increasing our reliance on our GA and also diversifying our products for the GA and by introducing more products that are focused on profitability as a way of achieving our goal of maintaining profitability similar to last year.
[Foreign language]
Thank you for your question. We'll now take the next question.
[Foreign language] The following question will be presented by Lim Hee-yeon from Shinhan Securities. Please go ahead with your question.
[Foreign language]
[Foreign language]
[Foreign language]
I have three questions. First question is about the GA share within your new business. The company had announced a certain ratio target of GA within your business, but based on your previous answer of how the company will shift more on GA profitability this year, is it correct for us to assume that that target no longer stands? If so, what is the share of GA that you're expecting to reach this year in your new business? Second question is about your target for new business in 2025.
Given that the market overall is not expected to grow, do you still think that SFMI will be able to increase its new business performance this year versus last year? If so, what is the new business goal target, growth target that you have this year? Third question is about the CSM adjustment. The KRW 200 billion per quarter seems to be the running CSM adjustments that the company takes to account for lapses, which if it's KRW 200 billion per quarter, that's KRW 800 billion per year.
That's about taking out a quarter's worth of CSM formation on a full year basis for these lapse adjustments, which seems to be not very efficient. My question is, do you think that it is possible for the company to reduce this KRW 200 billion of CSM adjustments that it's taking? If so, how much and how?
[Foreign language]
Well, to clarify and to answer your first question, when we say that we will be focusing more towards the GA, that does not mean we are planning to reduce our position in the GA channel. Our plan this year is to maintain our GA channel share, but also focus more on GA as a way of driving profitability. That's why I mentioned that we're planning to supply more profitable high-margin products and manage the portfolio through our GA channels to secure profitability.
[Foreign language]
Now, regarding our top line revenue, our market outlook for this year is that we're not expecting the market itself to significantly contract versus 2024. With that market outlook, we are expecting, we're targeting, maintaining our revenue level similar to last year.
[Foreign language]
Now, regarding the CSM adjustments and the size of those adjustments, that is something that happens across the industry. All insurers are going through a similar situation. That said, what we have as an advantage is that we have a larger share of GA business, which has better persistency than in-force business. And by improving on that front, I expect that we will be able to reduce the amount of CSM adjustment going forward.
[Foreign language]
Thank you for your question. We'll now take the next question.
[Foreign language] The following question will be presented by Choi Hee-won from Morgan Stanley. Please go ahead with your question.
[Foreign language]
First question is, I noticed that there were some disposal losses of KRW 150 billion this quarter. I'm assuming that part of that is related to your continuous change of your bond portfolio. Were there other one-off factors that explain the disposal loss? Second question is, can you provide guidance on the amounts of investment profits that you're expecting this year? Third, what are the key risk factors that are concerns that you have regarding the solvency capital this year?
Second set of questions is related to the treasury share cancellation schedule. You've announced that you are planning to cancel the amount assigned for this year, 2025, during April. Is that schedule still subject to change depending on Samsung Life's decision and potential filings that it has to make with the financial authorities?
[Foreign language]
To answer your first question, this is Ha-y oung Song, VP of Finance Planning. In addition to the KRW 150 billion of disposal losses related with our bond portfolio changes, there was KRW 80 billion of provisions taken regarding our overseas real estate. Overseas real estate market is expected to improve, but given the nature of real estate assets, the improvement pace may not be very fast. So we took a conservative approach to address any volatility and took that provisioning valuation loss. You've also asked about guidance for this year's investment profits.
Even though there are expectations that volatility may expand this year, we've already built in quite a competitive asset portfolio, and therefore we do not expect any issues in delivering investment profits this year. Regarding asset quality and asset soundness, in addition to overseas real estate, there are some domestic real estate exposure, but we do not expect there to be issues in asset quality there.
[Foreign language]
This is the CFO. I'll answer your second question. Actually, one of the alternatives that the company had internally considered was to keep that treasury share cancellation program up to the end of this year. However, after we announced our value-up program on January 31st, we also heard the demands of the market, and that's why we have decided to execute the cancellation, complete the cancellation within three months from January 31st, which is the day we had publicly announced our value-up program.
So that is what I have explained, that we are planning to complete the cancellation within or April or by within three months from the announcement that we made. Now, that is a decision that we took independently at our level. Whether we become a subsidiary of Samsung Life or not is not a decision that we can make, and therefore that was not a factor that we took into account when we decided the cancellation schedule.
[Foreign language]
Since there are no further questions, we'll now conclude the Q&A session. Once again, thank you for attending today's presentation. This concludes the 2024 fiscal year's earnings results presentation for Samsung Fire & Marine Insurance.