Good morning and good evening. Thank you all for joining the conference call for the Samsung Life earnings results. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star and one on your phone during the Q&A. Now we will begin the presentation on Samsung Life's first quarter of fiscal year 2025 earnings results.
[Foreign language]
Good morning. This is the CFO of Samsung Life. My name is Wan-seong Lee. I'd like to first thank you for joining us at the 2025 first quarter earnings call for Samsung Life despite your busy schedules. Before moving on to Q&A, I will quickly take you through key first quarter highlights based on the materials that we have provided.
[Foreign language]
At Samsung Life, we have been focusing our management resources on expanding market share in the growing health segment across product planning, channel, and marketing. Health now accounts for 74% of new business CSM, a record high, as we continue to secure high-quality CSM in health. Together with improved efficiency, we have achieved a CSM balance of ₩13.3 trillion, which is up ₩0.4 trillion YTD.
[Foreign language]
Last year, we provided a diverse range of products and coverage targeting the health market while improving the competitiveness of our sales, including underwriting and our sign-up process fees. We also enhanced our non-pricing competitiveness by offering added health management services, achieving steady growth in health new business CSM.
Our sales channel is also growing with a net increase of more than 2,000 agents year to date. Increased health product sales from our highly competitive exclusive FCs and GA channel has driven new business CSM growth, and we continue to see positive trends in the second quarter.
[Foreign language]
In the first quarter, we achieved net profit of ₩635.3 billion, up 2.1% YOY, driven by an increase in CSM amortization, improved operating variance, and investment profit, including dividends and consolidated gains. Despite economic uncertainties in and outside of Korea, we have achieved investment yield of 3.98% in Q1 under our asset diversification strategy.
[Foreign language]
Our K-ICS ratio as of the end of March 2025 is expected to decline slightly, impacted by regulatory tightening and rate cuts, but still we are well above the recommended regulatory threshold and have secured sufficient available capital to expand our shareholder returns. We're also focused on a diverse set of measures to further improve our K-ICS ratio in preparation against potential financial market volatility ahead. Moreover, we will continue to maintain the highest level of capital adequacy in the industry by securing high-quality new CSM and adhering to a strict ALM strategy.
[Foreign language]
This year, we remain committed to strengthening our core business competitiveness in insurance while increasing our investment profits through selective investments in high-yielding assets, all the while exploring new business areas such as senior living to drive future growth. We will progressively increase our shareholder return ratio toward our target of 50% thanks to an improved ROE driven by recurring profit growth.
[Foreign language]
Please refer to the slides for further details on our performance and be reminded that all forward-looking statements in today's call are subject to change due to changes in our domestic and global economic and business environment.
[Foreign language]
We will now then move on to Q&A.
[Foreign language]
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.
[Foreign language]
The first question will be provided by MW Kim from JP Morgan Securities. Please go ahead with your question.
[Foreign language]
Yes, thank you for the opportunity. I have two questions for you today. First, it does seem that your solvency ratio is actually changing a bit. So could you share your capital adequacy or solvency ratio target at the end of this year? I ask because nowadays interest rates are trending lower and it seems there is tightening in terms of regulatory regulations regarding reserves. So I imagine that there might be an impact on your solvency.
So what level are you looking to achieve by the end of this year? Second question is, of course, K-ICS is the regulatory scheme in calculating your capital adequacy, but for the shareholders, it's not enough necessarily to fully understand how much excess capital the company actually holds. Of course, you do provide disclosure of your tier one capital, etc., but what is the company's view in terms of free surplus levels, particularly from the perspective of the shareholders?
[Foreign language]
Yes, this is Wan-seong Lee from the RM team. Let me take your first question. Oh, sorry. This is Wan-seong Lee . Excuse me. As the CFO said earlier in his remarks, we're expecting our K-ICS ratio somewhere within 180% or so as of the end of March this year.
[Foreign language]
You asked about our target K-ICS ratio for the end of this year. Right now, we are targeting somewhere similar to where it stood as of end of March, around 180%. As you mentioned, the rates are trending lower and there is regulatory tightening for reserves. That said, we expect to be able to reach around 180% by enforcing very strict ALM to achieve sound capital. This will be driven through securing new business CSM, more purchasing of long-dated instruments, and also making use of co-insurance as well as co-reinsurance.
[Foreign language]
Regarding your second question, yes, K-ICS is the regulatory capital adequacy measure, but the regulatory authorities actually have been exploring different means of further changing the K-ICS regime, lowering the 150% threshold to 130%, adopting a tier one capital-based K-ICS ratio, for instance. So the local K-ICS scheme still is evolving today.
[Foreign language]
As the domestic and global economic environment continues to evolve, we're likely to see growing volatility also in market rates as well. It will take some time, we believe, for things to settle down and stabilize. We will be mindful of the revolving regulations and the changing economic environment. As we develop further capital management policies and have a greater sense of the free surplus in connection with K-ICS, we will be sure to communicate our findings with the market.
[Foreign language]
[Foreign language]
[Foreign language] .
The following question will be presented by Lee Byung-gun from DB Securities. Please go ahead with your question.
[Foreign language]
Yes, so thank you. If you allow, I'd like to ask my two questions one by one. My first question is, as you note on page one, you achieved a ₩0.4 trillion increase in CSM YTD. That's a very strong performance. According to your disclosure as of yesterday, it seems that there are some one-off drivers that may have led to that kind of increase, particularly from your fair value through, excuse me, fair valuation method CSM block on death cover.
It seems that there was an increase of ₩399.9 billion in the first quarter regarding future service CSM. Could you explain more on what particular driver resulted in that CSM growth? Because it is higher now than at the time of the transition, and of course it shows the capacity of the company to manage the assumptions well to deliver higher CSM, but I'm just curious about what kind of drivers.
We do know that there were a lot of changes to your underlying assumptions in 2023, 2024, particularly in the fourth quarter, but if you could provide further details on the drivers of that CSM growth, I would appreciate it. Do you expect it to continue?
[Foreign language]
Yes, this is [Foreign language] Head of the Actuarial Team.
[Foreign language]
You asked about why we saw a particular increase in CSM from our death portfolio. This is actually a reflection of the change guidelines that you will know went into effect as of the first quarter of this year. This was where the loss rates will now be calculated differently depending on different age segments. It was a one-off factor.
[Foreign language]
With this differentiation of loss rates by age group, what happened was for death cover, including whole life or term insurance, we saw an increase in CSM. While in contrast, for living benefit type coverage that covers hospitalization or surgical procedures, for example, we saw an increase in loss rates from the elderly group, which led to a slight decrease in CSM there.
[Foreign language]
In terms of CSM movement, when we achieve efficiency gains, for example, that will have more or less an even effect throughout all parts of our portfolio. However, when there is a specific intervention on the part of the regulatory authorities, then that tends to have more of a concentrated impact on some parts of our portfolio. That ₩0.4 trillion increase in CSM, that adjustment for our death portfolio, again, is due to the one-off factor.
[Foreign language]
[Foreign language]
I'll be quick with your second question, sir.
[Foreign language]
I actually have a question. This has to, it's just meant to make sure that there's no misunderstanding, but there was a recent earnings call by a financial holding company. I think there were some suggestions that the accounting assumptions underlying some of the disclosures or the numbers actually were not the most robust or coherent. I do have a question about the accuracy of some of the disclosures by companies, particularly regarding the expected loss rates, expected persistency relative to expected risk premium.
There is some element of confusion about the assumptions. When you project future cash flow persistency and other assumptions, they're not based on the three-profit source method, and it is a little bit artificial and varies widely between companies. Could you just clarify on this part regarding perhaps the accuracy or the robustness of your disclosures?
[Foreign language]
Yes, this is [Foreign language] Head of the Actuarial Team. Let me try to take your question.
[Foreign language]
You did ask a lot of questions all at once, so it is a little bit difficult to isolate each one, I'm afraid, but I will try to answer in three parts based on the extent of my understanding.
[Foreign language]
As you know, as of the end of March, the industry overall actually started applying the revised disclosure requirements, and so that reflected the results of the insurance reform committee last year. In terms of the difference between companies under IFRS 17, we will not say that our simulations ahead of implementation or our tests were 100% precise.
[Foreign language]
I think regarding the second part of your question, when we calculate the premium, we do not apply market pricing, but we go by the three-profit source method, which then means that we break down into risk premium and expense. So when we do this type of pricing, it includes, of course, the respective sources of margin. This pricing method, actually, I will agree that results in a slight difference versus our expected components at the time of applying fair market pricing or fair market valuation.
[Foreign language]
I think the third part of your question, you were asking about our long-term loss rate projections. Well, if you look at the life versus non-life industry, the biggest difference is that life actually has a very high proportion of whole life health cover, excuse me, whole life death and health cover.
[Foreign language]
The difference in that kind of product portfolio with the percentage is why for the life insurance companies, the loss rates may be lower at an absolute level. It depends on the product portfolio and the structure of the enforced contracts in terms of what the loss rates are likely to look like in the long term, for example, after 30 years. For companies that hold a lot of whole life, longer maturity products, 20, 30 years plus, we may actually see actual loss rates. The graph actually may be slightly different from what is expected by the market.
[Foreign language]
Let me just comment on my thoughts regarding the news, the media release from yesterday.
[Foreign language]
Perhaps you will remember that early on at the time of introduction of IFRS 17, we stated that our company's principle in terms of volatility and in particular our operating variance, our principle was to do the valuation or excuse me, to make sure that the variance actually converges to zero.
[Foreign language]
While we did our best to assess our BEL liability to make sure that the variance does converge to zero, because it is ultimately done by people, there is of course bound to be some volatility, which is why there is the risk adjustment or the RA account meant to be kept at a level similar to BEL.
[Foreign language]
That is why when calculating CSM, of course, we take out BEL and the risk adjustment. At the time of calculating BEL, I question whether it is best to try to increase BEL as much as possible through conservative valuation to recognize a lot of operating variance early on. I question it because I don't believe it is consistent with, necessarily consistent with IFRS 17.
[Foreign language]
In our company's case, actually every year we write about ₩5 trillion in risk premium and our operating variance on claim payments or claims are actually under ₩100 billion per year, which means actually the operating variance is below 0.2%, which is reflecting our effort to minimize it close to zero. That is our practice in terms of BEL.
[Foreign language]
Those were just my thoughts as an executive in charge of IFRS 17, given how recently there has been a lot of coverage, news coverage. Overall, we will work harder to ensure that there is no miscommunication or misunderstanding regarding disclosure and disclosure standards, and we will try to communicate more closely with the authorities to ensure that that is the case.
[Foreign language]
[Foreign language]
Yes, thank you for the very detailed answer. I only ask because there was a very strange development recently where if a company tried to understate its CSM to boost operating variance, some suggested that was very good business management. But thank you again for your clear answer.
[Foreign language] . The following question will be presented by Doha Kim from Hanwha Investment and Securities. Please go ahead with your question.
[Foreign language]
Yeah, so you did explain about the factors driving up CSM when you mentioned the death cover block earlier. Could you break down the adjustments from your general account versus the variable account? A breakdown of the various drivers for the CSM adjustment would be appreciated. Especially for the variable account, it seems that there was a negative adjustment. So could you explain why? Given the interest rate ambiguity that was likely to continue in the second quarter and likely fluctuation, could you provide your expectations as well?
Your second question is regarding capital. There was a certain percentage drop in your solvency ratio. It seems that on the AOC side, on the balance sheet, there was a negative 11 percentage points impact from discount rate, interest rate. That was offset in part by valuation gains on some of the affiliate holdings. On balance, we have the effect on solvency. But we don't need to take out the subsidiary holdings necessarily because it is a very valuable asset. But just to have more clarity on the actual volatility profile, what if we take out that subsidiary holding piece?
Could you provide more color on the capital? Also, relative to capital, it seems that you had a more significant degree of change in terms of your impairment. So also if you could explain further. Regarding the 100% solvency target for the end of this year, you did say that there are no further discount rate tightening expected until the year end. But given the changing market circumstances and the interest rate cycle, do you think there can be some detractors that detract from your being able to achieve that target?
[Foreign language]
Yes, this is [Foreign language] from the Actuarial team. Let me answer your first question.
[Foreign language]
I think you asked two things in the first question. Let me provide a breakdown of the CSM adjustment items.
[Foreign language]
As of the first quarter, our total CSM adjustments were minus ₩10 billion. This is actually ₩250 billion to ₩300 billion lower versus last year.
[Foreign language]
There was on a recurring basis adjustment of about ₩200 billion in the first quarter, mostly operating or excuse me, variance on our enforced book from changing in the lapse rates as an example. On the non-recurring side for the variable account, as you asked, there was a decrease of ₩90 billion due to tightening of the discount rates in particular.
[Foreign language] .
We explained about how there is now differentiation of the loss rates by age group. This led to improvement in our death cover block of about ₩270 to ₩280 billion as a one-off in the first quarter. That resulted in a CSM adjustment of minus ₩10 billion.
[Foreign language]
Let me ask your second question, the impact of falling interest rates on our variable portfolio.
[Foreign language]
Also, the variable block actually we apply 100% hedging. Any change in the interest rates will not lead to CSM adjustment or almost no CSM adjustment due to changing interest rates. Assuming that there are no further regulatory changes to discount rates, we do not expect to register CSM impairment on the variable block for 2025.
[Foreign language]
When we take out the effect of these one-off factors in the first quarter, we think that we should return to prior year levels starting the second quarter in terms of recurring CSM adjustments.
[Foreign language] .
Yeah, so let me take your second question. This is Won Chang-hee from the RM team.
[Foreign language]
Yes, as you said, our K-ICS ratio dropped by 5 percentage points. There was a 10 percentage point impact from falling interest rates and tighter discount rates, and then plus 5 percentage point impact from the net increase in CSM from new business and also rising Samsung Electronics share prices.
[Foreign language]
As you mentioned, we do expect additional decrease in our K-ICS ratio as an impact from changing market interest rates. That said, we are enforcing very rigorous ALM through the purchase of long-dated instruments and also, again, the use of co-reinsurance.
[Foreign language]
We are working together as one. The industry is working together with the authorities on possible adjustment of the risk calculation standards that are currently excessively conservative. We think that as we move toward the end of this year, things will materialize and become more visible.
[Foreign language]
Regarding the duration gap, it stands at 1.6 as of March 2025. It is higher versus the end of last year by 0.5, but still lower than the 1.8 we saw end of 2022.
[Foreign language]
In terms of the factors, the tighter discount rates were the biggest factor behind that increase in the duration gap. But again, we will try our best to defend against further increase by enforcing different diverse ALM measures.
[Foreign language]
Yes, let me elaborate on reasons for the decrease in capital in the first quarter. This is Mu-Cheol Woo from the finance team.
[Foreign language]
In terms of interest rate sensitivity, interest rate sensitivity in terms of our net assets is about ₩700 billion.
[Foreign language]
If you look at the 10-year Korean Treasury yield in the first quarter, it did decrease by 10 basis points compared to end of 2024. For 20-year KTB, the yield dropped by more than 20 basis points. Our valuation gain on bonds actually increased by ₩1.9 trillion.
[Foreign language]
However, our valuation gain or loss on our insurance liability was lower by ₩4.2 trillion. This number breaks down to ₩2.8 trillion from falling market interest rates and ₩1.4 trillion impacted from the benchmark or policy rate.
[Foreign language] .
In conclusion, as a consequence of lower market interest rates in the first quarter, we saw a ₩0.9 trillion decrease in our net assets.
[Foreign language]
We do not expect any further regulatory measures for the rest of this year. We will continue to increase our retained earnings by generating continued recurring profit and enforce tight management of our duration to minimize volatility in terms of our shareholder equity.
[Foreign language] The following question will be presented by Sin Young Park from Goldman Sachs Securities. Please go ahead with your question.
[Foreign language]
Yes, I also have two questions. First, regarding your target CSM, first the target for new business CSM and also what kind of CSM balance growth are you looking to achieve. And second question is regarding K-ICS. It does seem that there is a continued downward trend and there are some questions, concerns raised from the market as to whether you will indeed be able to expand your dividends as per your guidance earlier this year.
So for the first quarter, could you elaborate on the exact amount of profit available for dividend payments and the sensitivity? So if there's a 5% increase in payout, what kind of impact does that have on your capital ratio?
[Foreign language]
Yes, this is [Foreign language] from the actuarial team. Let me take your first question.
[Foreign language]
Regarding the size or expected size of new business CSM for full year 2025, as our CFO mentioned already, the portion of health in terms of our product portfolio has now passed 70% from April. Reflecting this, we're talking about new business CSM of above ₩250 billion on a monthly basis. When calculated for the full year, that means it's likely to be above ₩3 trillion. That would be where our new business CSM target is.
[Foreign language]
In terms of our expected or target CSM balance at the end of the year, while we can say for sure that we are expecting a net increase on a year-on-year basis, it is still hard for me to explain more specifically exactly how much. Given potential changes to our assumptions or efficiency into June, for example, also given the lack of certainty about the policy direction of the authorities.
[Foreign language]
We have been enforcing tighter management on our claim payments, including the loss ratios. We do not expect the CSM adjustment to be as sizable as it was in the fourth quarter of 2024. In conclusion, we are expecting a net increase targeting 13%, excuse me, ₩13 trillion or above. Once we're more into the third quarter past June, I think we'll be ready to provide more specific guidance.
[Foreign language]
Yes, I'm Head of the RM team. Let me explain the sensitivity between payout and our K-ICS ratio.
[Foreign language]
Assuming the net profits at ₩2 trillion, if there's a 5% increase in our payout, that will mean additional outflow of ₩100 billion in dividend distributions. Considering that our required capital would be ₩25 trillion, the impact to our K-ICS would be minimal at minus 0.4%.
[Foreign language]
This is Mu-Cheol Woo from the finance team. Let me add on our dividend capacity. On a non-consolidated basis, our unappropriated retained earnings currently stand at ₩13 trillion, and we do not have any surrender reserves, which would have acted as a constraint on dividends. We feel confident that we have sufficient dividend paying capacity.
[Foreign language]
Yes, this is the CFO. Our K-ICS ratio currently stands at 180%, and again we are targeting 180% by the end of this year, which is above the regulatory requirement by the FSS.
[Foreign language]
Given where we stand, we do not anticipate any problem in progressively moving closer toward the 50% in terms of our medium to long-term payout target, and we will remain committed to providing that kind of continued upside.
[Foreign language]
Yes, if I can ask just one other question regarding Samsung F&M. The procedure for incorporation as a subsidiary has already been concluded, but you did not mention anything about the value program. Could you provide more details in terms of the expected timelines, directionality?
[Foreign language]
This is the CFO. As you know, we incorporated Samsung F&M as a subsidiary as of April 30th under the Insurance Business Act.
[Foreign language]
We do appreciate the great deal of interest shown by the market in terms of the timing of our announcement of our value program, and I apologize sincerely for not being able to be more precise in terms of the exact timing.
[Foreign language]
In terms of value up, we consider boosting shareholder returns as our number one priority, and we are committed to expanding our payout on a continued basis in the midterm toward the 50% target.
[Foreign language]
As you know, there are very many abrupt changes to the domestic environment nowadays, and again I would like to seek your kind understanding in so far as we're not able to provide more details in terms of the exact timing of our valuation or, excuse me, Value- up Program announcement, but we will try very hard to make sure that we can do that as soon as possible.
[Foreign language]. The following question will be presented by Hee-Yeon Lim from Shinhan Investment & Securities. Please go ahead with your question.
[Foreign language]
Yes, thank you very much. If you look at the new business CSM trends over the recent years, I would imagine that the companies had a lot of hard thinking to do in terms of the balance between profitability and the sales volume. It doesn't seem quite, it doesn't seem easy at all to boost new business CSM in absolute terms. I'm interested in the company strategy in terms of new business between quality and quantity. Which side would have the priority? If you could explain the internal view in terms of this type of mid-to-long-term new business strategy.
[Foreign language] .
Yes, this is Lee Dong-hoon, Head of the Channel Marketing Team.
[Foreign language]
We're in the process of strengthening our underlying fundamentals, focusing primarily on the high-margin health-type products in order to boost overall profitability.
[Foreign language]
The portion of death products which actually have lower margins and higher sensitivity to interest rates actually is going down in relative terms.
[Foreign language]
After IFRS 17 went into effect, we actually mobilized our focus, or we focused on boosting sales of the high-margin health products. As a result, our first monthly premium actually has increased significantly. It's now about ₩10 billion as of the first quarter, a very big increase from the ₩3.3 billion in 2023.
[Foreign language]
You asked about the balance between quantity versus quality. Certainly, over the last two, three years, we have grown in quantity terms, but at the same time also in terms of quality as well, as we have worked to generate higher profits.
[Foreign language]
Going forward, we will continue to improve our product portfolio centered around the high-margin health-type policies and try to build and boost new business CSM above and beyond the death CSM, which has been declining.
[Foreign language]
Yes, I am Choi Chang-hwan from the Product Team.
[Foreign language]
Our product team has been consistently building our product competitiveness, again focused on securing high-quality CSM centered around the health products.
[Foreign language]
Thanks to these efforts, we continue to see net growth. Our monthly health policy sales were ₩8.9 billion as of January, but recently it's up significantly to ₩14.4 billion.
[Foreign language]
We'll continue to secure high-quality new business as we see blurring of the lines between life and non-life insurance companies in spite of more intense competition.
[Foreign language]
Sufficient answer to your question.
[Foreign language]. Currently, there are no participants with questions. Please press star 1, star and 1 to give your question. [Foreign language]. We will now conclude our 2025.