Ladies and gentlemen, good morning and good afternoon. Thank you for joining us. My name is Kim Jonggwon. I am the Team Manager at the IR Department of Hyundai Marine & Fire Insurance, and I thank you for taking your time out of your busy schedule to join us here today. Our agenda for today will consist of one hour, including the presentation of Q2 fiscal year 2026 earnings results, including Q and A session as well. Please be informed that we will be proceeding with consecutive interpretation for that time being. Without further ado, we will begin with a presentation for Q2 earnings results from the Head of Corporate Planning and Management at Hyundai Marine & Fire Insurance, followed by a Q and A session where the senior management present here will be joining in.
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Good morning, good afternoon. My name is Kyu wan Jeong, Head of Corporate Planning and Management at Hyundai Marine & Fire Insurance. Thank you all to all the investors and analysts for joining us for our Q2 2026 earnings call. Now let me begin with an overview of our Q2 performance.
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First, please turn to slide three for our key performance highlights. On a standalone basis, net income for Q2 stood at KRW 391.8 billion, up 85.2% year-over-year. Insurance service results rose 89.8% year-over-year to reach KRW 403.7 billion, driven by improved results across commercial long-term as well as auto insurance. Long-term insurance results continued to improve from Q1, which was mainly due to a smaller negative claims experience variance and a reversal of onerous contract expenses. Net investment income came down to KRW 99.7 billion, recovering part of the valuation losses recorded in Q1.
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The new business CSM multiple was 7.2x in Q2 as we continue to maintain the highest level in the industry, and the claims experience variance improved to KRW -5.6 billion from KRW -39.3 billion a year ago. This improvement has continued since the start of this year as the increase in expected claims following last year end assumption changes was accompanied by a stabilizing trend in claims paid. Our K-ICS ratio stood at 209%, up 18.9 percentage points from year end 2025.
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Now let me walk you through the results by business line starting with long-term insurance. Insurance service results for long-term insurance were KRW 348 billion in Q2, up 89.0% year-on-year. Looking at the main drivers, CSM amortization income increased by KRW 17.7 billion year-on-year, while results related to experience variance improved by KRW 22.8 billion. Other income and expenses, including expenses related to onerous contracts, also improved by KRW 114 billion year-on-year. This was mainly because we reflected the regulator's actuarial assumption advancement guidelines, where changes to loss ratio and expense assumptions led to a reversal of around KRW 90 billion in onerous contract expenses for medical indemnity insurance.
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Next is long-term insurance new business. Average monthly new business premium was KRW 9.3 billion in Q2, down 7.5% year-on-year. Personal healthcare insurance averaged KRW 8.5 billion per month. The new business CSM multiple for our captive tied channel continued to improve, reaching about 19.6x . The GA channel CSM multiple remained broadly in line with last year at around 16 x. No-surrender-value products continued to account for a larger share of sales, while the share of annual term insurance declined slightly from year end of 2025.
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Let me now turn to CSM and other profitability indicators for long-term insurance. The CSM balance was KRW 9.894 trillion, up approximately KRW 1 trillion from year end of 2025. In Q2, new business CSM increased by KRW 479.6 billion, broadly in line with the KRW 470.3 billion recorded in Q1. CSM experience adjustments increased by KRW 423.8 billion. This mainly reflected about KRW 440 billion from applying the actuarial assumption advancement guidelines in Q2. Both the 13-month and 25-month persistency ratios improved year-on-year. UI loss ratios also continued to improve as we strengthened our profit-focused portfolio. For the first half of the year, the first-year UI loss ratio improved by 5.6 percentage points year-on-year to reach 20.3%. The second-year UI loss ratio improved by 4.4 percentage points to reach 72%. These were the best loss ratio management results in the industry as a whole.
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Next are auto and commercial insurance. Auto insurance service results were KRW 3.8 billion in Q2, which was an improvement from year-on-year. Looking at the combined ratio drivers, the decline in earned premium per vehicle has slowed since the premium increase in February. Although the average claim amount rose due to higher compensation costs, results improved as claim frequency have stabilized. Commercial insurance service results increased year-on-year to reach KRW 52 billion. This mainly reflected a favorable base effect as the Q2 of last year included large-scale claims such as the fire incident at the Kumho Tire plant. The retention rate was 42.3%, broadly unchanged from a year ago.
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Now let me turn to asset management. Total invested assets stood at KRW 45.6 trillion at the end of Q2. Within the portfolio, domestic bonds declined slightly from 43% at the end of 2025 to 40%. This was due to lower valuations on our bond holdings as market rates rose. The share of foreign currency-denominated bonds increased slightly as the weaker won raised their value in Korean won terms.
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Now let me discuss our Q2 investment results. Net investment income after net insurance finance expenses was KRW 99.7 billion, which was down 23% year-over-year. Investment income increased 6% to reach KRW 335.8 billion as higher interest rates lifted interest and dividend income. However, net insurance finance expenses increased at 26% to KRW 235.6 billion. This was because higher market rates and a weaker Korean won increased interest expenses on insurance liabilities and foreign exchange expenses on foreign currency insurance liabilities as well. Our underlying investment yields, excluding valuation and disposal gains and losses, rose to around 3%, supported by solid growth and interest income.
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Next are our capital and solvency. Our K-ICS ratio was 209%, up approximately 1.8 percentage points from the end of Q1. In terms of the main drivers, higher interest rates added about 7 percentage points. Growth in retained earnings added roughly six points and a stabilization and reduction in experience variance risk following the stabilization of claims experience variance added more than 2 percentage points. On the other hand, higher required capital following the actuarial assumption advancement guidelines reduced the ratio by about 8 percentage points. The early redemption of a total of KRW 350 billion in our third subordinated bond issuance in May reduced it by another 5 percentage points.
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The core K-ICS ratio rose 8.9 percentage points quarter-over-quarter to reach 83.8%. On the basis that 100% of surrender value reserves will be fully recognized from March 2027, the core K-ICS ratio on that basis would translate to 95%, which is above the regulator's recommended level of 80%. At the end of Q2, the duration gap stood at 0.7 years, indicating a modest over-matched position. The K-ICS ratio's interest rate sensitivity was below 1 percentage point for a 50 basis points move, which is now a very stable level.
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Finally, let me share our outlook and priorities for the second half. From a regulatory standpoint, year-end liabilities could increase following new guidelines, including those on loss ratio assumptions for new riders under simplified health products. With that said, our underlying earnings generation capacity remains solid. In long-term insurance, the managed benefits system introduced in July is expected to drive a further improvement in claims experience variance. In auto insurance, higher earned premiums together with the September reforms for minor injury claims should support a gradual recovery in profitability.
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In asset management, we will build on our improved ALM position. We plan to gradually reduce bond purchases and expand our portfolio of medium-risk, medium-return assets, including corporate loans, to actively improve our investment yield. We will remain focused on strengthening our earnings generation capacity and securing stable capital positions as the foundation for higher corporate value. This concludes our earnings presentation for Q2 of 2026. We appreciate your continued interest and support. Thank you for your undivided attention.
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Now Q and 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 Jiyeon Lee from Shinhan Investment & Securities. Please go ahead with your question.
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Thank you for the opportunity to ask the question. My question is about the regulatory reforms that will be implemented next year regarding commissions. Do you expect that this will bring any changes to the distribution channels also in terms of proportion or allocation between GA and FP channels? Thank you very much.
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I am the Head of Marketing Planning Division. Thank you for your question. in light of the reforms to the commission beginning this year in July, the GA agents will be pursuant to the 1200% cap. Therefore, we expect that this will translate into reduced deferred income and also some slowdown overall.
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In the first half of 2027, with the implementation of the phased commission payment regime, which would be a regulation on the aggregate amount as well as the period of the installment payouts, we expect that the competition for commissions will slow down.
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Post-reform at Hyundai Marine & Fire Insurance, we will be looking into the abolition of the settlement support allowance as well as the reductions in the sales incentives that will lead to differences in the tied channels. We will be looking into making sure that we can differentiate through systematic promotion systems as well as database support, product differentiation and stronger underwriting so that we can expand the competitiveness of our sales channels.
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The following question will be presented by Doha Kim from Hanwha Investment & Securities. Please go ahead with your question.
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I have two questions for you. First is regarding the boost that we will have expected with the implementation of managed benefits in July. I have a question about manual therapy, whether you've seen, whether compared to June or to the first half of the year, reductions in claims. Also, I am curious about the balloon effect that we have heard that could translate into musculoskeletal condition treatments. We are really looking into the siloed effects of the managed benefits program that has been introduced in July. My second question is about the experience adjustments. I am sure overall it was a plus, but maybe we could silo that and separate that. If you break that into new businesses and new contracts, it could be a minus on that slide.
I am curious about the projections that you have for the actuarial supervision advancement guideline implementations, and what effect that will have in Q4 of this year.
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Thank you for the question. I am the Head of Long-Term Insurance Division. On a year-over-year basis, we have seen a reduction in manual therapy to the tune of about KRW 3.5 billion. However, we do also have to incorporate the balloon effect, where we have seen stretch and spray therapy increase by 162%, and also Scrambler therapy for musculoskeletal conditions increase 230%. On a net, we have not seen the overall claims reduce on that side. However, with that said, by the year-end, we expect that since manual therapy new claims on manual therapies will be going down 97% on a monthly basis by year-end. We expect that that will translate into a maximum of KRW 6.5 billion on a monthly basis, including when the balloon effects will subside. That is the effect that we see for the managed benefits.
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Next to address your question about the CSM adjustments. I am the Chief Actuary. In the first half of the year, there was a KRW 320 billion positive plus adjustment. Of that, there was a one-off adjustment of KRW 400 billion in terms of the overall systems and framework. However, more important than that is the ordinary adjustments on a year-over-year basis, which amounted to a KRW 130 billion improvement.
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At the year-end for CSM adjustments, the areas of concerns will be for simplified health products. For the newly introduced disclosure-based benefits that could put a subsiding effect on CSM. However, we do not expect that to translate into any negative impacts on insurance service results as a whole. Also on the medical indemnity side, we have seen a lot of improvement in terms of claims, so we will be looking forward to some reversals on the losses as well. We also have a very positive outlook on the assumptions for the lab rate as well as the expense rates.
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To sum up, there will be some downsides. The downside pressures will come from, as I said before, the newly introduced disclosure-based benefits for simplified health products. But we also have some pluses on other aspects, as I have explained. If we also see on the medical indemnity side, the premiums that will continue to improve and stabilize being materialized, we also believe that this can be a positive offset at the end.
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Next question, please.
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The following question will be presented by Byungkwon Lee from DB Securities. Please go ahead with your question.
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Thank you. I have two questions for you. First question would be on page four about the improvements we see in claims experience variance, especially on the medical indemnity side. We also see that onerous contract loss improvements will be the very key factor. If you take into account all of the loss component balances, I am curious about the split between medical indemnity and non-medical indemnity, as well as the loss factors that can be broken down within each generation of medical indemnity insurance. I am also curious whether Hyundai Marine & Fire Insurance can turn a surplus at the end of the year compared to the losses that it has made in previous years. My second question is about dividends. With the rising interest rates and improving OCI, I am sure that we are going to see a substantial improvement in distributable income.
If the plans you have for the positive offsets that will come from medical indemnity materialize by the end of the year, I am sure that you could be paying out dividends. That could be a very good likelihood. If you have the distributable income, my question comes down to whether you would be willing for a dividend payout, or you would want to wait to accumulate a base or a base amount to pay out stable dividends in the future. Just to clarify, my question is without taking into consideration surrender value reserves.
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To answer your question, I am the Chief Actuary. As of the end of the year, you have asked about any likelihood of reversals on the losses on onerous contracts. As a whole, the balance stands at KRW 1.3 trillion, with medical indemnity being the substantial amount for first generation KRW 1.1 trillion and KRW 200 billion for second generation, and only about KRW 10 billion-KRW 20 billion for non-medical indemnity.
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In the first half of the year, claims experience variance improved, and we believe that this will translate into a positive impact on the best estimate for our basic statistics and data. The loss component balance for third generation medical indemnity currently stands at KRW 1.2 trillion, and we believe that although we cannot speak to the specific figures and do not know yet about the specific amount of reversal, we believe that a reversal on that end by the year end is a very good likelihood.
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I am the head of the corporate planning division. Let me answer your question about dividends. Speaking to distributable income as of the end of Q2, our distributable income stands at a KRW - 660 billion, which is an improvement of KRW 700 billion compared to the end of Q1.
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The impact of the changes in improvements in the distributable income really comes from the fact that the rising interest rates have decreased the bond valuation, and that is actually larger than the increased valuation losses on the financial assets. So that negative amount of cumulative has been reduced.
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If you were to project to year-end, also, we will have to consider the speed of growth and surrender value reserves as well as a lot of different variables. We still believe that distributable income will be in the negative range by the end of this year.
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However, with that said, we will have to look into the rates and the income, how that will pan out in the second half of the year. To address your question about the company's plans on if we have even a small amount of distributable profit, our plan is to distribute even that small amount.
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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've seen the claims experience variance on the medical indemnity side go down a little bit, and I'm curious whether this is true, the conversion effects of the generations, and I'm also curious about the sensitivity rates. Any color that you can provide to us on the last claims loss rates.
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For metastatic thyroid cancer, we had a loss amount of about KRW 23.6 billion, which translated into a loss rate of 0.7%. On the medical indemnity side, in the first half of the year, we have seen a spike in respiratory treatments, which amounted to about KRW 30 billion. However, we do see, despite the fact that this has had a hit and deteriorated our claims experience variance, the fact that despite the claims payout for metastatic thyroid cancer, the overall performance has been holding very steady and good.
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To give you some projections into the second half of the year, we will continue to manage the claims experience variance for non-medical indemnity policies and products, as well as we can expect the positive cumulative effect of the managed benefit implementation on medical indemnity that we hope will bring the claims experience variance improvements in the second half of the year.
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I am the Head of the Long-Term Insurance Division. Let me answer your question about the impact of the managed benefits system on the medical indemnity premium rate. These rates are set after the settlements in September of each year. Since we have not reached September yet, we cannot speak to the specifics on the changes to the premium, but just because of the managed benefits, we do not believe that there is going to be a significant meaningful change on the medical indemnity premium rate.
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Next question, please.
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The following question will be presented by MW Kim from JP Morgan Securities. Please go ahead with your question.
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Thank you. I have two questions for you regarding solvency capital. Number one is about required capital. We know that the company has seen a lot of improvements in performance with very efficient and stable management of required capital. I am curious whether at the end of this year and also going into 2027 throughout, the company expects that it will be able to maintain at a stable level required capital of KRW 7 trillion . Also if you could share with us management's plans or tools, strategies to manage required capital in 2027, that would be much appreciated. The second question is on available capital. I am sure that the rates have had a very significant impact on available capital, and I am just curious about the company's future plans to better manage available capital.
Just to give you some color and context on this question, I am asking because I am sure that if in the future there happens to be some rate volatility or volatile rate environments that could impact the core capital that the company has worked so hard to stabilize.
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Thank you for your question. I am the Head of the Risk Management Division. To give you some insights into the projections that we have for required capital first, although there will be some changes and different scenarios depending on a lot of different external variables, our goal and target is to maintain required capital at a stable level at the end of this year and through 2027 as well. We plan on doing this by focusing on improving and managing the profitability and also the loss rates on the asset and management side as a whole.
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On the asset and liability side, if you look at our portfolio valuation, we implement a system where we incorporate and take into account the cost of capital, and we will continue to do so in our asset management investments and also structuring of our revenue and sales. Speaking to the available capital side, the impact that the interest rate environment has brought about has actually subsided quite a bit. We are a little bit overmatched on our asset side in asset liability matching. Even if there is volatility in the rate environment, we will be able to more than withstand that because of our current matching.
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On our insurance sales side, we will continue to manage and improve our loss ratios so that we can create a truly solid foundation for earnings generation capabilities. As we spoke to before on our asset liability matching side, we are overmatched on our asset side. As we noted in our presentation, we will be focusing more on medium risk, medium return investments and products so that we can continue to maintain available capital at a stable level.
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Next question, please.
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The following question will be presented by Sinyoung Park from Goldman Sachs. Please go ahead with your question.
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My question is as we are approaching 2027 and the regulatory easing on surrender value reserves is now approaching. I am curious about the sensitivity of distributable income to these regulatory easings on surrender value reserves. Also, I am curious, since the company has not been able to pay dividends in the past three years, what the management considers as factors that they need to consider or drivers when deciding on whether or not to pay dividends if distributable income turns to a plus. Since the company's multiple is still at a comparatively low level, I am also curious whether the company is considering any treasury share buybacks and cancellations for shareholder return purposes. If you could give us some color on the overall plan that the company has for dividends, that would be great.
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I am the Head of the Corporate Planning Division. First, let me address your question regarding surrender value reserves. As you might have seen in articles and current news releases, the regulatory authorities are looking into easing regulation on surrender value reserves by adjusting the ratios and so on.
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As of the end of June, our surrender value reserve stands at KRW 4.3 trillion. For every 10%, in terms of sensitivity, we forecast a KRW 450 billion- KRW 500 billion reduction in surrender value reserve.
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I am the Senior Executive Vice President and Head of Corporate Planning and the Management Group. Currently, of our treasury shares of 12%, we have set aside 3% for compensation for executive and employee performances. We have announced our plans. We have bought back 4.5% of treasury shares this year, and we will be canceling them in the first half of next year.
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To give you a little bit of color on shareholder return policies, we have not yet set in stone the shareholder return policies for when distributable income turns to A+. However, we can give you a little bit of color on the overall trajectory or direction that Hyundai Marine & Fire Insurance is looking at. Our principle, as a rule of thumb, is to provide dividends to the extent that it does not deteriorate or impact in any negative way our core K-ICS ratio. As we have stated in our presentation on our earnings for Q2, the core K-ICS ratio remains stable, which is a very positive outlook. If that continues into the future, we expect that we will be able to be paying dividends and shareholder returns at the typical 20%, but also above that level.
If our core K-ICS ratio continues to improve and is stable, we will also be looking into and reviewing plans to cancel the treasury shares that we buy back.
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Next question, please.
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The following question will be presented by Junsup Jung from NH Investment & Securities. Please go ahead with your question.
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I have one question about the company's asset management plans. You've seen that duration gap has improved and even turned a positive thanks to your well-managed strategies for the duration gap. You've said that you will be reducing the proportion of bonds and increasing the proportion of medium risk, medium return vehicles in your asset management investment portfolio. In accordance to this strategy, I'm curious about any investment income projections that you have per quarter moving forward.
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I'm the Head of Financial Planning Division. Thank you for your question. Overall speaking, we've been focusing on enhancing our capital strength, which is why our investments have really centered around KTBs or treasury bonds. However, now the market conditions really support improving and focusing on higher profitability and stronger income generation capabilities.
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Speaking to the composition of our overall portfolio, as we stated before, we will be focusing more on medium risk and medium return investments, which will include KTBs as well as equity investments, corporate loans, household loans, and also loan type products.
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Next, speaking to some projections on investment income, it's a little bit difficult to speak in finalized or concrete figures because we also do have to take into consideration investment finance income as well when we talk about investment income. However, hopefully, we look forward to reaching the KRW 200 billion mark in the second half of the year. With that being said, investment income growth and any rapid uptake in investment income is not an easy feat given the scale of the assets, but we will do our very best to make sure that we can improve investment income.
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Next question, please.
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The following question will be presented by Jaewoong Won from HSBC. Please go ahead with your question.
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I have two questions for you. First is on the future medical expenses that you expect to improve on auto insurance from September and onwards. What is that impact you believe that this will have on auto insurance as a whole? My second question is a follow-up question to the managed benefit impact that you referred to on manual therapy. You have explained, if I heard right, that because of that balloon effect offsetting the positive, that we have not seen a really big net positive impact from managed benefits, but you do expect an improvement by year-end. If we have not seen any improvements thus far as a whole, why is the reason that you expect improvements by year-end?
Also, just to add on another question, is there any particular reason that Hyundai Marine & Fire Insurance's balloon effect seems to be a little bit bigger than other insurers out there?
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I am the Head of the Automobile Insurance Division. First, let me address your question about the minor injury system improvements for auto insurance.
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To give you some update on the reforms to be implemented for minor injuries and auto insurance, the future medical expenses are not to be paid out. They are to be prohibited moving forward, and any treatment that is required exceeding eight weeks will require approval from a deliberation.
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Because the prohibitions on the future medical expense payments, the direct payments on future medical expenses for minor injuries will of course go down. However, we do also have to take into account that the prohibition on future medical expenses will increase the number of treatment days potentially, and also the balloon effects that can possibly arise in other grade levels as well. Looking into September and October, taking all of that into account, we expect about a 2% reduction in loss rate compared to the earned premiums. If this trend continues, by next year, we expect 3% or more improvement reductions in loss rates.
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I am the Head of the Long-Term Insurance Division. The July impact from the managed benefits implementation that we spoke to is a net offset because also because of the treatments that have been filed as claims, the treatments that were received at the end of June, but then the claims that were put in in July are also incorporated into those figures. In order to really silo the effect of the actual management benefit system, we look at the new claims. In terms of new claims, it has gone down by 97%. As the proportion of new claims in medical indemnity continue to accumulate and to become bigger by year-end, that is where we expect the improvements to come from managed benefits. Also we do have to take into account the two week prior treatment period.
Once again, that is the reason why we expect improvements by year-end, although they did not appear in July. To add on, we also believe that the fact that the industry as a whole is working with the authorities hand in hand is just another plus alpha factor that we can consider in the managed benefit system. Another thing I hope that investors and analysts on the call can consider regarding medical indemnity claims experience variance is that we take into account the 1 percentage point reduction in loss rates in medical indemnity overall, that has been driven by the lower claims that have been paid out.
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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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If there are no further questions, we will conclude the earnings release here. Thank you so much for your questions. Thank you for taking the time to be here with us. If you have any additional questions or comments, please feel free to reach out to the IR department. Thank you very much.