Good afternoon. I am Dong-wan Kim from the Corporate Management Department in charge of IR at Hyundai Marine & Fire Insurance. I'd like to thank our investors and analysts for joining our first quarter 2026 earnings conference call despite your busy schedules. Today's call will take approximately one hour, including the presentation and Q&A session, and Korean English consecutive interpretation will be provided. After CFO Mr. Kyu Wan Jung's presentation on our first quarter earnings, we will have a Q&A session with the management team present here today. We will now begin the presentation on our performance for the first quarter.
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Good afternoon. I am Kyu Wan Jung, the CFO of Hyundai Marine & Fire Insurance. I'd like to express my appreciation to all investors and analysts for joining our first quarter 2026 conference call. I will now present our business results.
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Please turn to page three for the key highlights. On a standalone basis, net income for the first quarter of 2026 was KRW 223.3 billion, up 9.9% year-over-year. Insurance service results was at KRW 302.1 billion, up 71.7% year-on-year, driven by higher profit in commercial insurance and long-term insurance, excluding auto insurance, which swung to a loss. The improvement was especially strong in long-term insurance as claim variance narrowed and one-off costs were reversed. Net interest income was limited to KRW 6.1 billion due to temporary valuation losses. I will explain this in more detail in the investment results section. The new business CSM multiple for the first quarter was 16.6x, maintaining the highest level in the industry.
The K-ICS ratio rose 17 percentage points from year-end to 207%, reflecting higher market interest rates and changes in the insurance risk calculation standard. Other P&L items including loss on onerous contracts also improved by KRW 112.8 billion year on year. This was because the supervisory authorities changed the required capital calculation standard for medical indemnity insurance, which raised the assumed future premium rate increase used in liability measurement. As a result, the RA liability declined and a one-off cost reversal occurred. The total cost reversal effect was about KRW 98.0 billion. The persistency ratio was similar to the level a year earlier. The UI loss ratio improved in both UI 1 and UI 2 as we continue to strengthen our profit-focused portfolio.
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Moving on to long-term insurance, new business and CSM. Average monthly new business sales in the first quarter was KRW 9.5 billion, down 16.4% year-on-year. Healthcare insurance posted a monthly average of KRW 8.5 billion. The CSM balance stood at KRW 9.1702 trillion, up KRW 268.5 billion from year-end. Despite lower volume, we continue to improve the portfolio by focusing on products and riders with high CSM multiples. As a result, new business CSM remained at a level similar to last year.
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Next are auto insurance and commercial insurance. Auto insurance posted an insurance loss of KRW 14.0 billion in the first quarter, turning to a loss from the same period last year. This was due to lower earned premium per policy following cumulative rate cuts and continued increases in claim costs.
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Commercial insurance service result was KRW 50.2 billion, up 9.4% year-on-year. In the first quarter, large loss accidents declined year-on-year, while retained premiums continued to grow steadily, mainly in profitable lines. This supported continued solid performance. For reference, the retention rate rose to 44.3%, up from last year.
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Next is asset management. At the end of the first quarter, total investment assets stood at KRW 46.1 trillion. Looking at the portfolio mix within invested assets, the share of domestic bonds declined slightly from 43% to 41.5% as the fair value of bond holdings fell following the sharp rise in market rates in March. By contrast, we increased the shares of foreign currency securities and loan assets from year end to improve portfolio yield.
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Let me now turn to investment income. In the first quarter, net investment income excluding net insurance finance expenses was KRW 233.5 billion, down 26.3% year-on-year. This was because valuation losses of about KRW 90 billion occurred on structured bonds and beneficiary securities tied to alternative investments due to higher market rates and a narrower spread between long and short-term rates. As a result, total valuation result on FVPL assets was about negative KRW 80 billion in the first quarter. However, the valuation loss on FVPL bonds is not a structural bond loss. It's a temporary valuation loss caused by sharp interest rate movements. If rates move back to previous levels, the loss can be offset by valuation gain.
In fact, as the spread between long and short term rates stabilized after March, these structured bonds generated about KRW 10 billion in valuation gains as of the end of April.
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Net investment expense increased by about 8% from a year earlier. This was due to higher interest expense on insurance liabilities as rates rose and a base effect from reclassifying the actual to expected variance on policyholder dividends from profit and loss to the OCI at the end of last year.
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Next is capital and K-ICS ratio. The K-ICS ratio rose 17 percentage points from the end of the previous period to 207.2%. Looking at the detailed drivers, higher interest rates improved the solvency ratio by about 7 percentage points. The change in the required capital calculation standard for medical indemnity, which I mentioned earlier, added about 5 percentage points. Stabilization of claim variance reduced the claim variance risk amount, adding about 4 percentage points. The core capital ratio was 74.9%, up 9.0 percentage points from year-end. Under the standard that fully recognizes the surrender value reserve, which will apply from the first quarter of 2027, the core capital ratio would be 85.9%. This is above the 80% level recommended by the financial authorities.
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The improvement in our solvency ratio was driven not only by the external factor of higher market rates, but also by our steady internal efforts. These include a continued increase in the share of long-term bonds and a higher share of year-term products to reduce interest rate sensitivity. As of the end of the first quarter, the duration gap narrowed towards zero faster than we had expected. Interest rate sensitivity also reached a stable level at 0.7 percentage points per 50 basis points.
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Lastly, let me discuss our market outlook as of May 2026 and how we plan to respond. From a regulatory perspective, the advanced actuarial oversight plan now under discussion could increase year-end liability volatility. At the same time, we view the introduction of managed benefit system, the launch of fifth-generation medical indemnity, and improvements to the auto insurance system for minor injury patients as positive drivers for earnings improvement. In particular, an annual limit of 15 manual therapy sessions was recently introduced, and the government is also working to expand participation in electronic claims submission for medical indemnity to prevent over-treatment and leakage of insurance payouts. We expect these efforts to help reduce losses in medical indemnity, which has been a key factor behind our valuation discount.
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In addition to the regulatory support, we will continue to manage the portfolio around high margin products and drive a qualitative growth in CSM. We will also continue to improve claim variance performance by improving the UI loss ratio. We plan to continue our financial efforts to minimize interest rate sensitivity in a macro environment that can change at any time. Through this, we will work even harder to enhance our earnings generating capacity based on steadily improving capital strength. This concludes our first quarter 2026 earnings presentation. We would appreciate your continued interest and support. Thank you for your attention.
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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.
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The first question will be provided by Julia Kim from JP Morgan Securities. Please go ahead with your question.
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Thank you for the opportunity to ask questions, and I appreciate the sharing of the good performance. I am Julia Kim. I have two questions. First I would like to hear about the long term, the risk of the loss, the trend for the first quarter and any movement compared to the previous quarter. Also, if I would appreciate if you share with us the 2026 annual, the guidance for the long term, the line. Secondly, my question is about the financial soundness. It seems that the companies are focused on the volume and the new business, but is the focus has been shifted to stability and the quality of the finance. It seems that you are taking more conservative underwriting and run the business in a stable manner.
What should the management view on the any possibility to decline the market share because of the increased stability and what's your KPI in that aspect?
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I am the head of the long term, the business, and in the first quarter the risk loss ratio was 101% of 1.3 percentage points, mainly because of the kids insurance. Last year the flu seasons lasted until July, however, this year it lasted until the February and March, resulting in additional KRW 30 billion loss.
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We believe the improvements will be made in April as respiratory diseases will be stabilized in Q2, resulting the reduced loss. In the first quarter, our loss ratio that has declined by 0.9 percentage point for indemnity insurance. For non-medical indemnity, there was an increase by 1.5 percentage points. Our so ratio is less than the 30% percentage point compared to the peers average of 81.4% because we could improve the loss ratio in the UI 1 and the UI 2.
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We think that there will be a less burden in terms of IBNR. For 2026 guidance, our target is 98.9%, which is a 0.7 percentage point decrease, which is our target. However, as you mentioned, respiratory disease loss added KRW 30 billion, and the delay of the managed benefit schemes also created a loss of KRW 20 billion.
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I am the CFO. Regarding the second question on the direction of the market share and our focus is on maintaining our profitability. while the CSM, the multiple, the maintaining CSM multiple.
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We would like to refrain from the two activities. First, we are going to refrain from the excessive the spending of the sales commission and cost incurring from the competition with external channels. We are going to focus on the more profitable the product and the coverage. While do that, we can achieve the gradual quantitative growth while maintaining profitability.
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Thank you. Next question, please.
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The following question will be presented by Seung-Geon Kang from KB Securities. Please go ahead with your question.
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Thank you for the opportunity to ask questions. I appreciate that sharing the good result, especially in the insurance service result. However, there was a valuation loss, especially in alternative investment because of the rising market rates. Can you tell us why it has been highly sensitive to the market rates? When you say so, KRW 90 billion was a valuation loss, it is purely from the alternative investment, or is it also related to the impairment? If the market rates are lower, it will be nice. What solutions and measures are you preparing to the rising the market rates? Secondly, in last year's settlement performance review that you mentioned that distributable income was a negative KRW 1.4 trillion.
In the first quarter, since you have a higher K-ICS ratio and higher asset value amount, I'm wondering how much is your distributable income for this quarter?
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I am the head of financial planning. To answer your first question, on the valuation loss, our investment income deteriorated on the - KRW 50.2 billion from structured bonds and the KRW 40 billion loss from the alternative investment valuation. For structured bonds, it is related to a higher interest rate. However, it is also related to the start of the Iran War starting in March. As a result of the interest spread that we had worked at a disadvantage for us, this issue was resolved to some degree, even though we are still in the effect of a higher interest rate. Half of these loss from the structured bond valuation in the first quarter was resolved. I think the alternative investment loss is not about impairment. It's mostly from the higher interest rate and the resulting valuation.
For in, overseas real estate investment and also the cost on the valuation loss because of the changing the real estate and landscape because we are diversifying the alternative investment. There was also the effect of ex-dividend. However, these figures are likely to improve when the macroeconomic situation is changed.
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I am the head of the corporate planning. Regarding the distributable income, the distributable income for the first quarter was a - KRW 1.398 trillion, which is a similar level from the previous quarter. For your reference, our surrender value reserve is about KRW 115 billion, we accumulated about KRW 190 billion.
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Thank you. Next question, please.
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The following question will be presented by Min-Gi Jeong from Samsung Securities. Please go ahead with your question.
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My question is about experience adjustment and the user mentioned the experience adjustment in relations to the onerous contracts and the K-ICS ratio. I'm wondering what would be its relationship with the required capital for indemnity insurance as well, and whether it can be as a recurring factor that in the future experience adjustment. Secondly, that you shared with us the projections for the loss ratio by the year end and compared to the last year, if it's related to the assumptions adjustment, I'm wondering what will be the effect on the year-end experience adjustment?
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First, I am the Head of the Actuarial Division, and there are the two factors affecting the CSM. One is the RA adjustment impact, and the other is a BEL, and one is have a negative impact, and the other is a positive impact. The resulting impact will be offsetting. The effect overall is minimal. Another CSM adjustment factor is a lapse, which costs a negative KRW 60 billion on the year-on-year, KRW 60 billion. However, year-on-year, it's a KRW 70 billion improvement, and it's a minimal level compared to those peers.
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Regarding the impact on the year-end figures, in the previous year, the third generation medical indemnity, the BEL has increased, so we had to recognize it as a loss. However, we don't have an increase in the BEL for third and fourth generation medical indemnity. The impact on PNL will be limited.
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There was a BEL related to the loss ratio of a generation, first generation and second generation medical indemnity. We need to see whether the increase of premium will offset the effect. But these are currently the generation, first generation and second generation medical indemnity that are not onerous contract, so it's not affecting the loss ratio.
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There is the impact from a simplified benefit that is related to new coverage. This will make the impact on the reduced CSM. However, it is not related to the PNL, but eventually it will improve our experience variance. The overall impact will be limited. That concludes my answer.
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Thank you. Next question, please.
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The following question will be presented by Yongjin Seol from iM Securities. Please go ahead with your question.
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I have two questions. First is on the issue related to this Hormuz, as far as I know, one vessel is affected among your insured vessels. Can you share with us the latest data? Also, I'm wondering what is the target for the commercial insurance sales point?
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We are participating as a lead insurer, as a direct insurer with a 45% share. The impact will be 11% and our excess point is $2 million, and the investigation is now going on. We don't think that it will be as a total loss. Our estimated loss will be $2 million worth KRW 3 billion, it will be the maximum level.
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I'm the head of the corporate planning, and we completely so repaid, the remaining subordinated bonds worth KRW 30 billion.
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Thank you for the question. Next question, please.
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Currently there are no participants with questions. Please press star one, star and one to give your question.
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This concludes our earnings call. For any additional inquiries, please feel free to contact our IR team at any time. We sincerely thank all the investors and analysts for joining us today.