Yes, thank you for joining us at the third quarter 2022 earnings call for Samsung Life Insurance. This is Shonan Kim, head of the Finance and Accounting team at Samsung Life. As per prior notice, this call will be conducted mostly as a Q&A with Mr. Dae‑Hwan Kim, our CFO, and other members of management. Allow me to highlight key results for the third quarter based on the materials that we have already provided.
In Q3, amid easing of COVID-19, everyday life was restored in large part across many parts of society. However, our business environment remains challenged with major economies accelerating their policy rate hikes and with ongoing strengthening of the U.S. dollar, the equity and bond markets have been displaying a high degree of volatility and a broad decline in value.
Despite the difficult business conditions driven by widening uncertainty, we have achieved strong results with protection new business seeing continued growth starting from the fourth quarter of last year, as we focused on timely supply of various new products responding to evolving customer needs. Thanks to our efforts to boost business efficiency and achieve fixed cost savings, insurance profit grew faster versus the first half of the year, recording KRW 1.16 trillion on a cumulative basis YTD. Investment profits saw a significant decline year-on-year due to an increase in valuation loss on variable guarantee reserves amid a continued drop in the equity market. However, with new investment yield now above 4%, we are seeing improved returns from our investment portfolio, leading to an increase in our recurring investment profit.
In terms of financial soundness, our RBC and LAT surplus are both at top levels in the industry. Although there was an issue over PF loans recently in Korea, our PF loans are mostly composed of secured assets and therefore we expect very limited risk of any distress from our exposure. Ahead of the new regulatory scheme that will be going into effect, we have completed the transition of our accounting settlement system as of the end of 2021. We are now in the process of putting together parallel financial statements based on IFRS 17. Upon completion, and subject to resolution by the board of directors late November, we're planning to hold an investors' day conference as well as analyst seminars sometime early in December to share further details on our findings and for stronger communication with market participants.
Upon transition to the new scheme, we expect our differentiated competitive advantage to become even stronger. As the flagship insurer representing Korea, we will build on our leadership role to shape the local-in-local insurance industry as we continue to improve on our underlying competitiveness. We're also committed to advancing our corporate value driven by strong pipeline of new businesses, by taking our asset management business global and also pursuing new initiatives in the healthcare and digital space. Yes, please refer to the handouts for further details on our performance, and please be reminded that all projections mentioned today are subject to change depending on changes to the domestic and global economic conditions and in the business environment. We'll start off our Q&A with management of Samsung Life then. Thank you.
The first question will be presented by MW Kim from JP Morgan.
안녕하십니까? 질문 기회 주셔서 감사드립니다. 두 가지 여쭤보려고 하는데요. 첫 번째는 금융 시장이 상당히 volatile하고 solvency도 많이 조정이 돼서 지금 여쭤보고 싶은 부분이 2022년 배당 관련 가이던스를 다시 한번 말씀해 주실 수 있으시면 감사드리겠습니다. 제 기억이 맞다 그러면 올해 payout ratio를 좀 더 올릴 수 있다, 이렇게 말씀을 해주신 걸로 제가 기억이 나는데, 이 부분 다시 확인해 주시면 감사드리겠습니다. 두 번째로 여쭤보고 싶은 부분은 공시가 좀 바뀌는 부분이 있긴 하지만, 금리가 굉장히 많이 올라서 LAT의 redundancy 금액도 47조가 넘는 굉장히 큰 금액이 된 거를 확인할 수 있었습니다.
궁금한 부분이 현재의 이런 금리 상황이 향후에 한 5년 정도 계속 지속된다고 만약에 가정을 하면, 현재 EV에서 보유계약 가치가 굉장히 커질 걸로 예상이 되고, 따라서 이 부분이 cash flow로 unwind되면 이익의 규모가 굉장히 커질 것 같은데, 향후에 이런 현재 금리 하에서 어느 정도 cash profit으로 unwind될 수 있는지 회사가 생각하시는 방향에 대해서 말씀해 주시면 감사드리겠습니다.
Yes. Thank you for giving me the opportunity to ask two questions. We're seeing widening volatility in the financial markets, and there have been adjustments to the solvency-related schemes. I would just like to ask you to remind us again on your dividend guidance for 2022. As far as I remember, I think you suggested that the payout ratio for this year might increase. I thank you for reiterating your dividend guidance again. Second, there will be some revisions made to the disclosure scheme. With increasing interest rates, you have seen a significant increase in your LAT redundancy or surplus at KRW 47 trillion. I would like to know, assuming that current interest rates persist for the next five years or so, what are your projections in terms of the unwind to profit?
I would think that given current EV rates or the current scale of EV with rising interest rates, the value of in-force will continue to increase, and you may see a significant boost to your profit from the cash flow unwind. Assuming current interest rates, what scale of profit unwind do you foresee?
안녕하십니까? 경영지원실장을 맡고 있는 김선 부사장입니다. 첫 번째 질문하신 2022년 배당 가이던스에 대해서 말씀드리도록 하겠습니다.
Yes, this is Dae-Hwan Kim, the CFO. Let me take your first question regarding our dividend guidance for 2022.
우선 배당에 영향을 미치는 건 일단 올해 연간의 손익이 얼마가 될 거냐가 가장 중요한 첫 번째 이슈가 될 것 같고요. 지금 예상으로는 4분기에는 경영, 여러 가지 금융 환경도 조금 개선되는 조짐이 보이고 있고, 저희가 손익 개선이나 다른 사업 확대를 위해서 REITs 사업도 시작을 하면서 부동산을 일부 매각하는 부분이 있다 보니까, 거기서 들어오는 추가적인 손익 등을 감안을 하면 최근의 평균적인 수준의 이익은 가능하지 않을까 생각을 하고 있습니다.
In terms of the dividends, I think it would be, of course, a function of how much full-year profits are recorded at the end of this year. We are already seeing signs of improvement for the fourth quarter with improvements to the overall business and financial environment. We have been working on improving the earnings, expanding into certain businesses, for example, selling real estate property to REITs for disposal gains. Combined and in consideration of these efforts, we think that we will be able to achieve full-year profits in line with average levels.
물론 최근의 금융시장 변동성이 큰 부분이 부담은 되고 있지만, 어쨌든 이런 점을 감안해보면 내년도 배당에 대한 방향은, 경기 여건이 현재보다 크게 악화되지만 않는다면, 작년보다는 배당 성향을 조금 높이면서 안정적인 배당을 지급할 수 있도록 검토를 하고 있고, 최선을 다해서 준비할 수 있도록 하겠습니다. 이상입니다.
Of course, the recent widening of volatility in the financial markets does weigh on us as a challenge. Based on what we have seen thus far in terms of the orientation for dividend payments next year, we think that unless the business cycle or environment sees a material deterioration from current levels, we will be able to achieve a slight increase in the payout versus last year. We are reviewing the options and also are committed to doing our best so that we can deliver stable dividends.
네, 안녕하세요. 기계팀장 변인철입니다. 질문 주신 두 번째 질문에 대해서 답변드리도록 하겠습니다.
Yes, I'm head of the actuarial team. Let me take your second question.
먼저 내년부터 IFRS 17로 회계제도가 바뀜에 따라서 질문 주신 것처럼 금리가 현재 수준을 5년 동안 상승한다고 하더라도 그 할인율 변동에 의한 효과는 부채 감소 효과는 자본계정의 OCI로 처리되게 됩니다.
As you know, we will be transitioning over to the IFRS 17 accounting system starting next year. You asked, what if we assume that the current rate of interest rate increase will persist for the next five years? How the rising rates will result in a reduction of our liability? Well, any such reduction actually will be reflected in the OCI of our balance sheet under the equity or under the equity section.
그렇지만 금리가 상승하게 되면 단기에 이자 수익 증가로 투자 손익이 좋아지게 되는데요. 현재 경영 계획을 진행하면서 장기적으로 보고 있었을 때 일정 부분 손익이 좋아지는 걸로는 보고 있는데, 현재 정확한 수치는 아직 산출 중이어서 말씀드리기는 어려울 것 같습니다.
However, with rising interest rates, that will mean in the short term an increase in interest income for us. We do anticipate a certain improvement to our investment returns. However, although we are looking at the prospects in the longer term, as we formulate our business plan going forward, and even though we do anticipate certain improvement, it's hard to specify the exact number because we are still in the process of, you know, calculating the numbers.
다만 IFRS 전환하면서 저희가 과거 고금리 상품에 대한 이원차 마진을 일정 부분 부담하고 가는 부분이 있어서 현재보다는 금리 상승에 따른 개선 효과는 좀 상대적으로 좀 커질 걸로 예상을 하고 있습니다. 이상입니다.
Right now, though, we are weighed by the negative interest margin from past legacy fixed rate products. With transition to IFRS 17, we think that the effect of rising interest rates will actually be more to our benefit than current levels.
다음으로 질문해 주실 분은 씨티의 야페이티안입니다. The next question will be presented by Yafei Tian from Citi.
Good morning. Thank you for taking my questions. I have two, if I may. The first one is really around the current changing macro environment, as management mentioned earlier. There seems to be somewhat of a deterioration in the asset quality environment in Korea broadly, you know, PF loans, etc. Just want to understand what would be the broader implication for Samsung Life from a asset quality perspective. We see a little bit of increase in delinquency this quarter. Just wanted to see your projection on that asset quality trend, assuming that interest rate would stay here for relatively long, high for relatively longer time. Second one is to again looking at slide 22 of the presentation, the bottom right on the spread between reserves and earning assets.
It seems that it's still widening this quarter. That is a little bit surprising given the rising interest rate environment and the pickup in investment yield. Just want to hear management guidance on, you know, when should we expect this spread kind of started to narrow. Thank you.
질문할 수 있는 기회를 주셔서 감사드립니다. 전체적인 거시경제 환경을 봤을 때 한국 전반에 걸쳐서 자산 건전성 문제들이 좀 이슈가 되고 있는 것 같습니다. 최근 PF 대출 부실화 건 등도 있었는데요. 이게 삼성생명, 특히 자산 건전성 관리 면에서 어떤 함의를 갖는지 궁금합니다. PF 등 혹은 대출 등에 얼마나 자산 운용을 하느냐, 그 quota에 있는 어떤 변화가 있을 수 있는지 궁금하고요. 지금과 같은 금리 인상 환경이 지속된다 감안했을 때 자산 건전성에 대해서 어떻게 생각하시는지 여쭤보겠습니다. 두 번째, 22페이지 우측 하단에 보시면 이원차 spread가 이번 분기에서도 좀 확대가 되는 모습이라서 다소 의외였습니다. 금리가 상승하고 또 운용수익률이 개선된 것을 감안했을 때는 약간 의외인데, 이 이원차 spread에 대한 guidance를 부탁드립니다.
아, 예. 전략사업부장입니다. 첫 번째 질문에 대해서 일단 답변드리겠습니다.
Yes. I'm head of the Strategic Investments team. Let me take your first question.
지금 말씀해 주신 대로 최근에 금융시장의 변동성이 굉장히 커지고 있고, 특히 한국 시장에서 여러 가지 부동산 관련된 자산들, 특히 PF 대출에 대한 시장의 걱정이 많은 게 사실입니다.
As you mentioned, it is true that there has been widening of volatility recently across the financial markets. In the Korean markets, there have been increasing concerns over the real estate or property market. Certain assets like PF loans.
저희가 지금 투자하고 있는 자산 중에서 대체투자자산이 한 37조 정도 되고
In terms of our investment portfolio, about KRW 37 trillion worth are allocated in alternative investments. Out of the KRW 37 trillion, KRW 21 trillion are in senior type instruments. Of course, there has been recent increasing concerns over the property PF loan market. Our exposure is actually KRW 4.7 trillion. Again, we see very low to no risk of distress on those assets. Most of the assets are concentrated in the Seoul or capital region, and they are already sold units or otherwise backed by large construction firms or public institutions in Korea, and so very secure. So far, we have not seen any delinquency on the assets yet. Again, assuming that the current financial market conditions are maintained, we do not assume any high risk for loss on those assets.
Yes. This is the head of the finance RM team. Let me take your question on the reserve coverage. When interest rates go up, obviously the new investment yield will also go up. Of course it should be expected that that would be favorable to our reserve coverage or the spread. There are certain preconditions that actually have to be factored in. Recently, the speed of interest rate increase has been very high. What's happening is that the interest on our reserves actually has been rising at a faster pace versus the interest on our new investments.
However, after we pass this phase of very rapid increase in interest rates and once things stabilize, we think that we'll see gradual improvement to the negative spread as the reserve interest rate, the pace of increase will slow down, whereas on a compound or cumulative basis, the yield on our interest-earning assets will go up faster. Just one thing that this reserve coverage or the spread on investment margins, it only takes into account interest-earning assets only. It should not be seen as the only absolute criteria in terms of, you know, gauging the profitability of our investments. Next year, after implementation of IFRS 17, there will be large adjustments to both metrics, the reserve interest rate, and also the yield on interest-earning assets.
We think that starting next year, this metric itself should see a significant improvement.
The next question will be presented by Doha Kim from Hanwha Investment & Securities.
Yes. I also have two questions. The first question, this is the interpreter. The sound was not very clear at my end, so I may have missed some. The point was, you mentioned your commitment toward improving dividend payments. Although we also look at the consolidated results, you also will have to be mindful of the non-consolidated performance results as well. Although you foresee certain improvement to the variable guarantee type of reserves in the fourth quarter of KRW 100 billion, I think, with that said, on a full year basis, we foresee that the net profit actually may go down by about KRW 200 billion versus this year. Taking that into consideration, how would that weigh on your decision-making in terms of the dividends? Second question regarding the Samsung Electronics shares.
Next year, if IFRS 17 and IFRS 9 are both implemented, how would the allocation of the PEA or policy holder equity adjustment be? Will there be some allocation to valuation gain or loss, as is the current case?
Yes. This is the CFO. Let me take your first question. So again, this is the head of the finance accounting team, not the CFO. Sorry. So despite improvements in various efficiency measures, overall, given the extreme volatility that we have seen on the financial markets, it is true that, on a cumulative basis, up to the third quarter this year, we have seen about KRW 650 billion in cumulative loss from the variable guarantee option type products that has weighed on our profit.
Yes. Barring any further extreme volatility on the financial markets, we do believe that we will be able to achieve our target in terms of the variable guarantee PNL. Internally, when we determine the level of dividend payout, the basic standard of course is the consolidated results, while we do also consider and keep in mind the non-consolidated results as well. Regarding the specific projections for the fourth quarter, I will pass it on to the head of our support team. Again, this is the head of the management support team. In terms of our earnings projection for the fourth quarter, we are actually foreseeing an improvement of about KRW 600 billion-KRW 700 billion. For example, we mentioned how we want to expand our usage of REITs.
We think that disposal gains from REITs will add up to about KRW 450 billion. We expect disposal gains on equities of about KRW 150 billion. Combined, that's about KRW 600 billion in disposal gains in the fourth quarter. For the variable guarantee PNL in the fourth quarter, we are expecting an upside of 100 billion won from the effect of increase in the discount rates. The insurance PNL is actually very strong as well, is expected to be very strong in the fourth quarter as well, following the trends from the third quarter.
As a combined effect, we think that for full year 2022, we should be able to achieve a level of profit at or above that of 2019 or 2020. Okay. Let me take your second question. I'm the head of the finance team. I do know that there was a news article that was published today, but I would like to clarify that a lot of those suggested facts are in fact not true, because what we are doing is classifying the Samsung Electronics shares as available for sale securities and any valuation gain or loss from the SEC stake are accounted for under OCI.
Even with transition to IFRS 17, this will be the consistent practice, same as now, where the stake will be classified as OCI asset, therefore will not affect our PNL. Regarding the allocation to policy holder equity adjustment, this is not determined by any accounting or any difference in accounting treatment, but it is done in clear compliance with the relevant Insurance Business Act and also the regulatory standards as well. Even with transition to IFRS 17, that will remain unchanged.
The next question will be presented by Jun-Sup Jung from NH Investment & Securities.
I would also like to ask two questions. First of all, it has to do with your previous answer. It may be due to my lack of understanding, but I would like you to elaborate a little bit further. You mentioned how even with transition to IFRS 17, your SEC stake will be classified under OCI. Even if there are changes to the value of the stocks or any valuation or changes to the valuation gain or loss, it will not have a bearing on your PNL. Even if the shares are disposed as an OCI asset, it would also not impact your PNL. Supposing that after next year, there is an event where for different reasons you choose to do a partial sale or partial disposal of the SEC shares.
In that case, would there be anything for the existing shareholders or the participating policy holders to gain upon that kind of sale of SEC shares? Second question. The situation actually is the same for the overall industry, but with interest rates rising very quickly, the other players have also seen a rise in the lapse or surrender on lots of the savings type products. Whereas the lump sum or one time payment type of products actually have increased in terms of sales. I'm wondering what the situation is at Samsung Life. What do you think the direction will be going forward, and how will you respond?
Yes. This is the head of the finance team. Let me take your first question.
Upon transition to IFRS 17, if the Samsung shares, which are currently held under OCI, are sold, then the realized gain or loss from the sale would not be accounted for under PNL, but it would actually go under retained earnings. In the event that there is disposal of those shares, the disposal gains will again go to the retained earnings, part of equity. They would be available for dividend payments with no problem in terms of dividends being made available. For the policyholders allocation, we would also make the distributions out pursuant to all the relevant laws. There would be no impact to dividends. This is the head of the support team. Let me take your second question regarding liquidity related issues.
As you mentioned, or amid the abrupt rise in interest rates, nowadays, a lot of the insurance companies and financial institutions have been experiencing liquidity challenges. Some actually have been trying to raise more liquidity through high rate savings, lump sum type products. As you mentioned, there is a rise in lapse or surrenders, and we also have seen an increase in those metrics. We think the level of the lapsed contracts, also the level of liquidity are all within a controllable scope. The reason why we feel this way is because we have significant liquidity at around KRW 2 trillion and also sufficient bond holdings as well. We'll be able to cover further liquidity needs through disposal if required.
We have no plans to do what the other insurance companies are doing, resorting to selling more high rate savings type products, which actually has the effect of raising their reserve interest rate. We are trying to not resort to that kind of practice and have no such plans at present. However, potentially if the volume of lapses goes up versus current levels significantly or if the lapse period actually becomes protracted, it could potentially impact our bottom line, in which case or actually to prevent that, we have been closely monitoring market developments and our status as well.
Given the current situation, rather than short-term savings type products, which could continue to see lapse upon lapse, we actually have been focusing on annuity type products which are more true to insurance in nature are more closer to true insurance products and trying to prepare to attract further inflows.
The next question will be presented by Hong-Jae Lee from Hyundai Motor Securities.
Yeah. Thank you for the opportunity. I will also ask two questions. In terms of your floating rate reserves, I would like to ask whether you could provide sort of a breakdown of the mix. By, I guess, minimum guaranteed rate line or by range, what would be the split or the breakdown? Second, I don't think the issue maybe pertains in a large way to Samsung Life, but just for, you know, to inform us in terms of overall guidance going forward, are there any, you know, developments in terms of legal reserves to boost, you know, the profit base available for dividends or any type of those developments? I think that is the question.
Yes. I'm Head of the Actuarial Team. Let me answer your first question.
As of the end of September, our total reserves stand at KRW 190 trillion, and of that 40%-43% are linked to crediting rates. Out of the KRW 190 trillion in total reserves, KRW 70 trillion are the fixed rate reserves, and then the remainder KRW 120 trillion are the floating rate reserves. Over the last five years or so, we have been applying minimum guaranteed rates between 1%-2%. Out of that total of KRW 120 trillion in floating rate reserves, KRW 40 trillion are the reserves where this minimum guarantee rate applies. The remainder KRW 80 trillion, again, the floating rates just track or are linked to the crediting rates.
Yes. Let me take your second question. I'm the head of the finance team.
In terms of our retained earnings available for dividend payments as of the end of last year on a separate basis, the total is KRW 13.5 trillion. Within that total, there is no sizable amount of legal reserves that would be big enough to really have an impact. Overall, given the current status, we have sufficient capacity to make dividend payments available.
Yes, this is the head of the actuarial team again. Let me just supplement the second question answer.
Yeah. As our finance team had just explained, as of this year where IFRS 4 still applies, we do not have any legal reserves that could impact dividend payments to our shareholders. I think you're asking what the situation may be post transition to IFRS 17. Actually, relevant bills regarding these items actually are still pending at the National Assembly and therefore are not finalized. But let me just give you a little bit of color in terms of what we know to date. The variable guarantee reserves, for example, or the difference between the surrender reserves versus mark-to-market reserves at the time of transition, et cetera, how that can impact shareholder dividends.
Regarding these three types of reserves that I just mentioned, I will first say that none of those reserves actually will be stated or accounted for under retained earnings. I will clarify each one by one, and I mean after transition. In terms of the surrender reserves or the difference versus the mark-to-market reserves, because our company will only see a slight increase in liabilities, mark-to-market liabilities, there will be no statement under retained earnings. Regarding the variable guarantee reserves. Upon transition to IFRS 17, 100% will be hedged and pursuant to regulatory standards, when we fulfill certain conditions, we are not required to state under retained earnings. That applies to us.
Regarding the guarantee reserves against the variable guarantees, or excuse me, the variable guarantee reserves. Because the reserves actually will increase versus the current reserves based on IFRS 4, we will also not be required to state or make a statement under retained earnings. However, in the future, if there is additional increase in interest rates or elevated interest rate levels persist for a protracted term, there can be certain changes that are required, and we will communicate that to you through the IR team.
Yes, thank you very much. With that, we will conclude the third quarter 2022 earnings call. Thank you.