Hello, everyone. I am Kyung Sang -hyun, in charge of IR in the business management team. We thank you for participating in the Hyundai Marine & Fire Insurance 2024 Year-End Conference Call. We will begin today's presentation with a 2024 earnings presentation and projections for 2025. The earnings call will continue for one hour with Korean and English consecutive interpretation. We will now begin the presentation.
Hello, I am Gyu -wan Jeong, Head of the Planning and Management Division at Hyundai Marine & Fire Insurance. I would like to express my gratitude to all investors and analysts for participating in the 2024 earnings conference call. Before explaining the earnings performance, I would like to inform you that in this year's financial statement, there was a change in the treatment method of crediting interest rate variance.
Following the Financial Supervisory Service follow-up measures on accounting standard unification announced in January 2025. The 2023 financial statements have been restated retroactively. As a result of this retrospective adjustment, the 2023 crediting interest rate variance of KRW 333.4 billion has been reclassified as other comprehensive income. I will explain the earnings performance. Please refer to page 4, Summary of Financial Performance. As of the cumulative total for 2024 on a standalone basis, net income recorded KRW 1.03 trillion, marking a 33.4% increase compared to KRW 772.3 billion same quarter in the previous year. Breaking it down, although auto insurance profit declined, improvements in long-term and commercial resulted in a 98.1% YoY increase in total insurance profit, reaching KRW 1.043 trillion.
Investment profit decreased by 21.9% to KRW 352.1 billion. For the fourth quarter, net income recorded a loss of KRW 15.7 billion, similar to the previous year, due to the decline in both auto insurance profit and investment profit. At the end of 2024, ROE stood at 20.6%. Now I will discuss the performance by business segments, focusing on fourth quarter results. For long-term insurance, accumulated insurance profit in the fourth quarter increased by 247.6% year-over-year, reaching KRW 865.3 billion. In the fourth quarter, insurance profit improved by KRW 216.8 billion year-over-year.
In the fourth quarter, there was an increase in influenza cases and other seasonal respiratory illnesses, which led to higher claims, which exacerbated the claim variance, resulting in a decline of approximately KRW 80 billion compared to the previous year. However, the impact of indemnity insurance premium rate increase reduced loss burden related costs by approximately KRW 330 billion YoY.
[Foreign language]
Looking at long-term insurance new business sales, the cumulative monthly average new business premium for the fourth quarter was KRW 11.8 billion, down 6% from KRW 12.6 billion in the previous year. For healthcare insurance, the monthly average was KRW 10.8 billion, marking a 6.4% decrease YoY. At the end of 2024, the CSM balance stood at KRW 8.2478 trillion, reflecting a 9.2% decrease compared to the previous year due to regulatory reinforcement on lapse ratio for low surrender value insurance policies. The new biz CSM multiple continued to improve after the strategic premium rate hike in April, closing at 11.9 x for healthcare insurance, and 12.9 x for total long-term insurance new business.
The fourth quarter new biz CSM reached KRW 496 billion, marking a 39% increase YoY.
[Foreign language]
Next, let's look at automobile and commercial insurance. The cumulative insurance profit for auto insurance in the fourth quarter decreased by 90.5% YoY, reaching KRW 19.2 billion. Amid continued effects of premium rate reduction and accident frequency increase due to seasonal factors such as heavy snowfall in the fourth quarter, fourth quarter recorded a loss of KRW 76.5 billion, a significant decline in insurance profit.
[Foreign language]
For commercial, insurance profit increased by 107.5% YoY to KRW 158.6 billion in the fourth quarter. The trend of increasing net premium written, particularly in preferred lines, continued, while the frequency of high-value claims decreased, leading to a significant improvement in profit compared to the previous year.
[Foreign language]
Going on to asset management, investment profit for 2024 decreased by 21.9% YoY to KRW 352.1 billion. Excluding the impact of insurance, financial profit and loss, total investment profit reached KRW 1.2084 trillion, and the investment yield was 2.81%, a 41 BP YoY decline. For the entire year, interest income increased YoY due to improvements in the yield on interest-bearing assets. Overall investment income declined due to the base effect from FVPL bond valuation gains and dividend income in 2023.
[Foreign language]
Let us discuss capital solvency, capital and solvency ratio. At the end of 2024, equity capital decreased YoY due to a decline in the discount rate applied to insurance liability and falling market interest rates. The solvency ratio fell 14.3 percentage points from the previous quarter to 155.8%, impacted by capital reduction factors and regulatory reinforcement of laps assumptions for low surrender value insurance policies at the end of the year. I will present on Hyundai Marine & Fire Insurance's key management strategies and business outlook for 2025. The overall industry outlook for 2025 suggests continued regulatory tightening, such as the second phase of insurance liability discount rate reinforcement.
While there are profit deteriorating factors, including premium rate reduction in auto insurance and seasonal impacts like influenza, there are also positive opportunities such as policy implementation, addressing non-reimbursable medical expenses and indemnity insurance, which were discussed in the Insurance Reform Council. I will outline our detailed management strategies and outlook by business segment. First, in long-term insurance, we expect new business sales to decline slightly Y-O-Y. The new business CSM Multiple is expected to continue rising, supported by the premium rate hike in April and a portfolio shift toward high CSM products. We plan for new CSM volume to increase Y-O-Y through margin improvements. The variance of long-term insurance is expected to improve slightly Y-O-Y, while actuary assumption adjustments at year-end will reflect increased expected claims.
We will strengthen our efforts to prevent leakage through tighter indemnity insurance claim reviews, ensuring meaningful improvement in claim variance profitability. For auto, we plan for premium income to remain at the previous year's level. However, insurance profit is expected to decline due to cumulative effects of premium rate reduction and rising claim costs. To mitigate this, in fact, we will enhance sales in the CM channel, which has superior profitability, actively utilizing profitable riders to minimize the decline in insurance profit.
For commercial insurance, premium income is expected to slightly increase in 2025. Insurance profit is projected to remain at a similar level of the previous year, supported by continued net premium written growth and profitable lines. We will enhance retention based on the strong profit performance of 2024 and maintain stricter underwriting policies for unprofitable lines. Asset management in 2025, excluding insurance, financial profit and loss. Investment profit is expected to improve as interest income increases due to continued efforts to enhance the yield on interest-bearing assets. The evaluation loss on FVPL alternative investment asset is expected to stabilize, contributing to improvements. We will also employ proactive strategies such as bond for transactions and portfolio rebalancing to strengthen ALM while improving profitability. This concludes our presentation on 2024 earnings results and 2025 outlook.
Thank you for your participation and your attention. That concludes our presentation. We will now begin the Q&A. We will allow two questions per person for smooth proceedings.
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 Eung-chan Lee from HSBC. Please go ahead with your question.
Thank you for giving me the opportunity to ask questions. I have two questions. The first question is related to KICS. The KICS ratio this year dropped to 156%. What is your target KICS for the end of this year? This year, there will be changes in regulation, such as changes in the discount rate to liabilities and also regulatory changes on the breakdown of loss ratio by age bracket and last observed term, LOT. Despite these changes in regulation, do you think you will be able to achieve your KICS target? The second question is related to dividend. When do you think that your company will be able to pay out dividend again?
I am Hong from the Risk Management Division. I will be providing forecast projections for KICS in 2025 and how the regulatory impact will be on our KICS.
[Foreign language]
As you are well aware, last year in March, there was a strengthening of the discount ratio for long-term insurance, and also there was a regulatory reinforcement on lapse rates for low surrender value insurance policies, which had a extremely negative impact on our K-ICS ratio. In order to compensate for this, we issued a subordinate bond. However, despite such efforts, there was an overall decrease.
[Foreign language]
Our target for K-ICS in the end of 2025 is 160%. Into 2025, there will be strengthening of various regulatory measures, such as a change in the discount rate for long-term insurance and LTFR, also LOT of the 23 years, which will have an overall impact of 13 percentage point impact on our K-ICS.
[Foreign language]
Regarding the breakdown of loss ratio by age brackets that will be implemented, we do not believe that this will have a big influence. However, we will thoroughly monitor the situation and calculate as this is implemented. In order to respond in order to improve our K-ICS ratio, we plan to issue subordinate bonds, and we will be utilizing reinsurance in order to transfer our loss risk.
[Foreign language]
I am Gyu-wan Jeong from the planning management division. First of all, I would like to state that we would like to extend our sincere apologies to shareholders and market participants for not being able to distribute dividend for the 2024 fiscal year. It is our top priority, and our company is putting our utmost effort in order to pay out dividend. We are doing our utmost to reach a turnaround in our capital situation. We are even receiving external consulting on this matter. We are putting in efforts in order to work closely with the industry associations and the financial supervisory institutions in order to improve the situation. However, as you may understand, it will take some time for us to achieve tangible results.
We are carrying out various simulations to have an understanding of when we will be able to resume dividend payout. Due to various regulatory variances, uncertainties, and market interest rate uncertainties, at this time, it is not possible for us to give you a timing and date of when we will be able to resume our dividend payout.
[Foreign language]
I would also like to state that regarding the indemnity insurance reform that is planned for our company, we have a high portion of indemnity insurance products. If such reform of indemnity insurance products takes place, then you can expect accelerated improvements in our performance. More than ever, the government seems very committed to realizing such reforms quickly. We hope to see this situation turn around, and we will closely communicate with the market. The following question will be provided by Seol Yong-jin from SK Securities. Please go ahead with your question. I have two questions. The first one is related to your new biz portfolio.
I see that in your new biz portfolio, compared to general type, now you are having a more simplified new business insurance products. I would like to know the portion of yearly matured new businesses. New businesses that have a maturity on a yearly basis, what is that portion? Can you also give us the multiplier for different insurance product lines? I know that you have issued subordinate bonds and that you plan to continuously issue subordinate bonds, but there is a ceiling of, and limit on the amount that can be issued. What is the remainder? I am Dong-suk Kim in marketing. Regarding the annual new businesses with a maturity period of one year, we have been increasing this portion YoY continuously.
Last year it was 57%. In 2025 we plan to maintain it at levels similar to last year. The target is 57%. I am Hong in the risk management team, I will be speaking about our ceiling in terms of the supplementary capital. As of December 2024, the available capital that can be issued was KRW 2.4 trillion, the remaining amount is KRW 1.5 trillion. In 2025, as the required capital increases, we believe that the ceiling will be increased to KRW 2.3 trillion.
Due to liability discount ratio changes, due to regulatory changes, and if there is added uncertainty into the market interest rate, and if we reach our limit in terms of the subordinate bonds that we can issue, then the conditional assets are another measure that we can consider. For these capital securities that have conditions attached to it provides for better measures in terms of the principal and the interest. This can be carried out by 15% of the required capital, which means that it will be possible for us to issue up to KRW 1.2 trillion.
[Foreign language]
I will now explain about the long term insurance products CSM by product line.
[Foreign language]
For the simplified insurance products, the CSM is 20 x and compared it to annual maturity and the new maturity. The annual maturity is 2x to 3 x higher.
[Foreign language]
Clarification that the yearly is 2x to 3 x lower. Compared it to the Simplified version for the general, it is 3x to 4 x lower. The CSM for these types of insurance products is 16 to 17. The CSM is 16x to 17 x.
[Foreign language]
[Foreign language]
The following question will be presented by [Foreign language] from KB Securities. Please go ahead with your question.
[Foreign language]
In the fourth quarter, it seems that there has been a variance adjustment of more than KRW 1 trillion. I know that part of it is related to the regulatory enforcement on the lapse ratio for the low surrender value insurance. In the fourth quarter, however, it seems that there were other factors, too. Can you explain this? In terms of your yearly profit in the fourth quarter in particular, there seems to be more volatility in terms of the variance and the differences and the contracts with a loss burden. This seems to have this undermines the stability of your earnings. I believe, however, that the volatility has improved compared to last year slightly. Why is there such volatility in these areas?
In 2025, I'm sure it's not easy for you to make, forecast. However, are there some measures that are going to be put in place in order to stabilize such volatility?
[Foreign language]
I am Kim from the Actuary division. Your question is can be divided into three categories adjustments of experience-based adjustments and the variance related issues also about the burdensome losses and for the experience related adjustments. In 2023, at that year, there was a KRW 1 trillion amount of CSM adjustment. Most of this was due to regulatory changes, which was KRW 730 billion. This was mostly due to the regulatory tightening of lapse rate assumptions for low surrender value products. There was the KRW 100 billion of the optimization.
[Foreign language]
In 2025, we do not expect major changes to regulations. There is the optimization adjustment matter and for the loss ratio, there is a positive factor and for the lapse ratio and the expense ratio, we believe that it's the minus or the negative impact that occurred in 2024 in terms of our expense ratio adjustment and our expense lapse ratio. We expected that there will be actually positive factors in 2025 regarding the lapse ratio. In 2023 and 2024, we think that it will be similar, that the lapse ratio has reached its maximum. It will be reduced in terms of the negative effect.
[Foreign language]
For the claim variance in 2024, up until the third quarter, we were actually quite improving in the area of improvement. However, in the fourth quarter, there was a sudden surge into respiratory diseases, which led to a major increase in the claim variance. In 2025, we expected that the claim will increase by KRW 450 billion. However, we do not feel that in 2025 there will be such a surge in respiratory diseases. Therefore, we expect improvement in the claim variance, loss claim variance.
[Foreign language]
Regarding the policies that have a burden of loss in 2024, that amount was KRW 100 billion. This was actually a major improvement compared to 2023, in which we saw for the 3rd Generation Indemnity policies, a loss of KRW 500 billion. As you can see, there have been improvements in this area. The accumulated recognized losses for such loss bearing products was KRW 1.4 trillion. As we see improvements in indemnity insurance products of the 3rd and 4th generation, there is actually even a possibility that what has been recognized as losses will be reversed. This reversal may take place at the end of 2025 or slightly after that.
[Foreign language]
[Foreign language]
The following question will be provided by Kim Ji-Won from Daol Investment & Securities. Please go ahead with your question.
[Foreign language]
I have two questions. The first is related to CSM. Compared to the beginning of the year, at the end of the year, the CSM has gone down. Which means that in terms of the insurance profitability, that there will be a reduction in the amortization of profit. In 2025, my actual question is related to this. What will be your priority? Will your emphasis be more on the insurance product profitability or will it be on the investment profitability improvement? Once again, our 2025 strategy in terms of your business operation, will you focus on ALM or more on profitability?
I am Kim from the Actuary division regarding CSM multiplier and amortization related profit. Due to the reduction in CSM, there will be a reduction of the amortization profitability. However, that level is maintained similar to the previous year.
For our new business, CSM, in 2023, the CSM multiplier was 11, and then it was increased to 13 in 2024. In 2025, once again with adjustments into the premiums expected in April, we believe that the CSM of new business will improve, and this will lead to an increase in the amortization profitability. I am from the financial planning, and I will be explaining about our investment strategy. Our investment strategy for 2025 is not to miss out on anything. In other words, we will be pursuing ALM and profitability simultaneously. Considering the interest rate in the market, we will try to expand interest bearing assets, and we will be well managing our midterm portfolio, and we will analyze the market situation closely in order to mitigate against risk and yet seek profitability.
In order to manage our ALM, we will be investing into long-term treasury and treasury bonds, and we will also invest in special bonds. For the profitability, we will be giving loans to corporations and we will consider alternative investments. We will be increasing interest bearing assets, maintaining a smooth stream of interest. For the FVPL, we believe that the losses will be reduced and that there will be overall improvement of profitability compared to the previous year.
I am Hong from Risk Management. I will briefly touch upon our ALM strategy. You know, there is an increase in assets that are sensitive to the interest rate due to strengthening of the regulation on lapse rates for low surrender value insurance policies and also due to the discount rate changes and the regulation.
In order to improve our ALM, there will be issuance of a subordinate bond. In order to have ALM, For the such subordinate bond issuance, we will be purchasing long-term bonds, and we will engage in the bond advance to transaction, and we will consider the derivative products in order to mitigate against situations of an increase in the interest rates. For our insurance liabilities, we will be reducing the more longer term ones. Therefore the long-term insurance, there will be efforts to carry out a joint re-insurance seeding.
The following question will be provided by Kang Seung-gun from DB Financial Investment. Please go ahead with your question. The K-ICS management.
The following question will be provided by Kang Seung-gun from DB Financial Investment. Please go ahead with your question.
[Foreign language]
Thank you for managing the situation despite the difficult environment. I know that you are working on managing your KICS there will be costs associated with issuing subordinate bonds because you would have to align the maturity of the subordinate bonds with long-term treasury and long-term bonds that you also align. There is another possibility or measure that you can use, which is reinsurance. What I would like to know is the cost associated with utilizing reinsurance compared to issuers of subordinate bonds. When there is a 1 percentage point improvement of KICS, what would be the reinsurance cost compared to cost of operating a subordinate bond? Of course, there would have to be consideration of interest rate sensitivity.
In any case, what could you provide a comparison of the cost of utilizing reinsurance versus subordinate bonds and improving one percentage point of KICS?
I am Hong from Risk Management. I will be explaining the benefits of issuing subordinate bonds versus seeding reinsurance. As you are well aware, when a subordinate bond is issued of amounting to KRW 100 billion, then the cost will be 120-150 BP base points. For reinsurance it's a similar level. Of course, it will depend on the contract unit, reinsurance contract unit and who the counterparty is, but the cost is pretty much similar.
The following question will be provided by Kang Seung-gun from Shinhan Securities. Please go ahead with your question.
[Foreign language]
I have a question related to CSM. I would like to know if you have been reflecting the loss ratio breakdown, the changes in regulation regarding the loss ratio breakdown according to different age brackets. Was that reflected last year or in the fourth quarter? If it was not reflected, when do you believe you will be reflecting this change and the loss ratio breakdown into different age brackets at one timing in 2025? What will be the impact? My second question is, I understand it that there are efforts within the insurance industry to come up with calculations, to provide estimations of when an accident takes place and when the claim is placed for that loss associated with that accident.
Will this change and calculation in the timing of the accident versus actual claim being placed, will this have an impact on the CSM? The third question I want to ask about your 2025 new business strategy. It seems that you are trying to increase your CSM to the level of 2023, but considering market situation, it does not seem that it will be easy. Are there some other plus factors that I have not considered? In particular, in 2025, I think that there will be intense competition for new businesses. There was guidance from the government of reducing premiums. It seems that your plans are slightly optimistic or aggressive. What are the factors that you believe will lead to such results?
[Foreign language]
I am Kim from the Actuary division. First of all, the timing of when the change in the loss ratio according to the age brackets will be implemented. It will be implemented first quarter 2025. This is under the assumption that the older you are, as you age, the loss ratio will increase. Therefore, there has to be an increase in the liability. However, it is different based on portfolio of the insurance types. In our case, in our company's case, we have many policies with low with policy holders that are younger. In this case, they actually have a high loss ratio. If we use this age bracket breakdown system, then it will reduce the liability.
There will also be different policies that will see an increase in the loss ratio, which will increase the liability. The positive and negative effects will offset one another. We do not believe that this change in regulation will have an impact on our liability in first quarter.
[Foreign language]
Regarding the loss ratio, and reflecting the present value to the loss ratio, the implementation of this regulation and policy change is actually, at this moment, uncertain. If, however, the present value is reflected in the loss ratio, then it will reduce the insurance liability and have an effect of increasing CSM. If this is reflected this year, then the within this year. For our estimation of CSM, even if we disregard the present value application to the loss ratio, we think that the CSM can be increased from KRW 8 trillion to KRW 9 trillion.
[Foreign language]
For this year, we do not expect major changes in regulation and in policies, for the loss ratio. The assumptions, it will turn around to positive. For the expense ratio, there were many negative factors, but this will be going into positive factors as we enter 2025. For the surrender ratio as well, there were many negative factors, but the negative factors are reducing. Therefore, this year we think that CSM can be increased to KRW 9 trillion. For our new business, CSM, the multiplier has been improved from 11 x to 13x . This was because of increases in the premiums and adjustments to our insurance product portfolio. This year in 2025, again, we believe for our new business, CSM will improve.
[Foreign language]
I am Dong-suk Kim from the marketing and planning. There was a question about new business revenue expected in 2025. In 2024, we saw a decrease in our market share because we aimed and targeted increase of highly profitable insurance products. We adjusted our portfolio to make sure that we have a quality insurance product sold. Thanks to this, the CSM for the new business increased and there was more profitability by channel. If you take a look at first quarter CSM multiplier compared to year end, there was an increase of 3.2x .
[Foreign language]
We will maintain this marketing stance this year. We will increase the CSM total amount. In order to do so, we will carry out two strategies. One will be increasing the CSM multiplier. Second, we will operate differentiated strategies by channels.
[Foreign language]
In order to improve CSM multiplier, we plan to focus our attention on high CSM products, such as the specialized healthcare product, for three major critical diseases. We will also strengthen our effort on the simplified insurance product.
[Foreign language]
We will have differentiated strategies by channels. For our tied exclusive channels, they have high profitability. Therefore, we will work on increasing revenue obtained through these tied channels. We will reinforce the training and education provided to them and in order to increase the persistency ratio and in order to increase in force policies. For the GA channels, we will make sure that it does not become unprofitable by improving the overall quality there too. We will work on improving profitability and managing loss ratio of the GA channel.
[Foreign language]
Since there are no further questions, we will conclude today's earnings call. We kindly thank the investors and analysts for their participation. If you have any further questions, please contact the IR team. Thank you.