Good afternoon. This is CFO Joong-won Kim . Thank you for joining our earnings presentation. Please note that today's presentation is based on KIFRS. Let me begin the report on the earnings for the first half of 2025.
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Page one is on earnings highlights. In the first half of 2025, Hanwha Life secured solid new business CSM through strong channel competitiveness and enhanced financial stability despite volatility in the industry due to regulatory strengthening. First, with a larger sales organization of 35,700 SP, new business CSM reached KRW 925.5 billion in the first half of the year, with greater visibility, achieving the full year guidance of KRW 2 trillion.
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Consolidated net profit posted KRW 461.5 billion with a separate net profit of KRW 180 billion. The K-ICS ratio is estimated to be 161% in the second quarter, exceeding the recommended level of 130% by over 30 percentage points. Let me give you more details on the following slide.
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Page two is on new business APE and CSM. New business APE in the first half of the year totaled approximately KRW 1.8 trillion, down slightly year on year. However, Q2 new business APE increased 8.7% year over year, thanks to the growth of whole life policies and medium and long-term premium payment terms.
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New business CSM in the first half of 2025 recorded KRW 925.5 billion, nearly half of our annual guidance. Also, despite falling interest rates and intensifying competition, new business CSM multiples are improving, mainly driven by health insurance.
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Page three is on the sales organization. As of the first half of 2025, the number of SPs reached approximately 35,700, further solidifying the industry's strongest channel competitiveness. The new SP retention rate improved to 55.7% through competitive sales infrastructure, such as well-structured SP training and development systems.
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While the 13th month persistency remains stable at high 80%, the 25th month persistency improved substantially from the end of the previous year to 80.1%.
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Page four is on in-force CSM. In the first half of the year, ordinary CSM increased to approximately KRW 9.2 trillion on the back of new business CSM inflow of KRW 925.5 billion and experience variance adjustments. Due to CSM adjustments related to liability discount rate cuts in the first quarter, in-force CSM balance as of the end of the first half decreased to approximately KRW 8.8 trillion.
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The impact of liability discount rate cuts, which brought down inforce CSM in the first half of the year, was fully reflected in the first quarter. With experience variance expected to decline on the back of improved persistency, we expect inforce CSM volatility to reduce in the second half of the year.
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Page five is on net income. Due to a drop in insurance income driven by decrease in onerous contracts and reduced investment income on the back of greater financial market volatility, separate net income in the first half of 2025 fell year over year to KRW 179.7 billion. Net income on a consolidated basis also saw a YoY decline to KRW 461.5 billion.
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In the second half of the year, we will drive up insurance profits through stronger product monitoring and access management of experience variance, and generate more investment profit on the back of market stabilization.
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Page six is on asset management. 92% of our investment portfolio are interest-bearing assets, and investment yields in the second quarter was 3.17%.
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We will continue to increase investment profit in the second half of the year by expanding selective investment in high-quality assets, purchasing long-term bonds to replace short-dated bonds, and strengthening dividend income from alternative investment assets.
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Regarding our bond portfolio, please refer to the relevant slide for more details. Now on page eight, K-ICS and duration gaps. Despite larger volatility in the industry due to liability discount rate cuts, our second quarter K-ICS ratio is estimated to be up 7 percentage point QoQ to 161%, thanks to stable new business CSM inflow and hybrid bond issuance.
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Duration gap was reduced by 0.19 years from the prior quarter to 0.08 years. We will strive to increase the portion of long-dated bonds for stronger ALM and reduce required capital to boost our K-ICS ratio.
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Page nine is on Hanwha Life Financial Service, which is our core sales channel. Net income in the first half of 2025 recorded KRW 69.1 billion, up 28% year over year, maintaining a solid earnings trend since turning a profit in 2023.
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Page 10 is on domestic and global credit ratings. Since we successfully adopted new regulatory regimes, we have been expanding market leadership by strengthening sales competitiveness and maintaining financial stability through active capital management. As a result, three major domestic credit rating agencies upgraded our credit rating to triple A stable in March. Furthermore, in May, Fitch and Moody's, global credit rating agencies, also upgraded our credit ratings to A+ and A1, respectively. It means that positive changes that we have been making are recognized domestically and globally. Going forward, we remain committed to enhancing core competitiveness to be a financial company trusted by our customers and investors.
Now we would like to begin the Q&A session.
Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. The first question will be provided by Theo Hadiwijaja from JP Morgan Asset Management. Please go ahead with your question.
Thank you very much for the call. I have some questions. The first one is, if you can talk about the P&L. You mentioned that the earnings decline was due to onerous contracts , and also the other one was investment income being lower. Can you talk about more details, I guess, behind these two? The second question I have is in terms of the K-ICS ratio being at 161 as of second quarter, what's the projection for the year of 2025 in terms of the K-ICS ratio, the asset movements and also, I guess, the tightening of regulatory measures over the next one year? Thank you.
I'm Baek Seemin from the Business Management Team. Let me answer your first question to give you more details on the increase in onerous contracts and decrease in investment income. As you mentioned, we have two main drivers that brought down our earnings. The first one is increase in costs for onerous contracts , and the second one is decrease in asset valuation gains in terms of investments.
With respect to increased costs for onerous contracts , mainly because of the cut in liability discount rates, we saw an increase in onerous contracts in our portfolio in the first half of the year, and also there was an increase in losses coming from some health-related riders. However, a majority of these issues in the first half of the year have been addressed, in particular, with respect to our lowering the limit for underwriting for such riders and other risks that we undertook in June.
With respect to a decrease in investment income in the first half of the year, we saw a decrease in asset valuation gains from some of the investments that we have in our portfolio. However, I'd like to mention that interest income has been on the increase, especially with an increased share of bonds and other interest-bearing assets in our portfolio. We're also seeing an improvement in the financial market overall, so we believe that valuation gains will also continue to improve going forward.
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In the first half of the year, as you pointed out already, we saw an increase in onerous contracts in terms of our insurance profits, and there was a decrease in the valuation gains from the investment side. However, going forward, we will continue to work hard to improve profitability of our policies in the portfolio while continuing to secure more interest income and investment returns. We expect better improvements in the earnings in the second half of the year. Thank you.
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I am Park Si-won from the Risk Management Team. Let me answer your second question on our K-ICS outlook, as well as actions that we're taking to improve our K-ICS ratio. First of all, we will continue to work hard to improve the new business CSM inflow, and at the same time, we are making recommendations to the regulatory authorities regarding liability discount rate related regulations, especially on accident claims. In addition, we will continue to increase the share of loan-weighted bonds in our portfolio to reduce interest rate risks and investment risks.
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In addition, we are making preparations for potential introduction of the internal model regime that the regulatory authority announced last year. So all in all, through these efforts, we are planning to keep our K-ICS ratios to be mid-160% by the end of the year. We are well aware of the potential downside risk of further falling of interest rates on our K-ICS ratio. So we are closely monitoring the interest rate movements in the industry.
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Regarding potential regulatory impact on our K-ICS ratio for the next one year. Currently, the regulatory bodies are reconsidering some adjustments to liability discount rate related guidelines. The extension of the last liquid term and other liability related regulations were already announced to be strengthened in the 2026 and 2027 period. However, given the difficult situations and the reality in the industry, the authorities are considering potential readjustment or revision of these guidelines. The details have not been announced yet, but we expect that the authorities are going to provide some direction for potential revision in either August or September.
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In addition, the authorities are considering a potential strengthening of duration gap related regulations for better ALM. The details or timing have not been announced yet, but we expect some announcements to be made in August or September. Even before any details are announced by the authorities, we are working hard to be prepared for any regulatory changes that have already been announced, based on the assumption that these regulatory changes will take effect as scheduled. We will make sure to continue to monitor and manage our K-ICS ratio. Thank you.
Does this answer your question?
Yes, it does. Thank you.
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The following question will be presented by Myung-woo Kim from JP Morgan. Please go ahead with your question.
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I'm Myung-woo Kim from JP Morgan. Thank you for the opportunity. I would like to ask two questions. The first question, I believe it's been asked almost every quarter. I'd like to get your input on the solvency guidance by the end of the year. I'm asking this question because numbers have been changing quite frequently. You mentioned that you are assuming some regulatory changes and also making assumptions on potential interest rate declines. I'd like to understand to what extent you can defend, and you can continue to build up your solvency capital. I would also like to understand under what conditions you will be able to start paying dividends back to your shareholders again. This is rather a broad question that I'd like to understand your view on the economic capital that you have.
You already mentioned the potential utilization of the internal model, but I'd like to get your view on the economic capital that you have right now. Do you believe that this is a sufficient level? What is your position? As you shared with us, the credit rating agencies, both domestically and globally, have upgraded the credit ratings, but the regulatory body's view seems to be different that they think that insurance companies like Hanwha are not really able to pay dividends to shareholders. It seems that there are some different perspectives on the capital and the definition of capital. Your reported solvency ratio is slightly lower than your peers in the industry. If you can give us some color on the company's view on the economic capital, whether this is sufficient for future business growth and shareholder return. Thank you.
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I'm the head of the Risk Management Team. Let me give you information on our year-end K-ICS guidance. The major factor that increases volatility in our K-ICS ratio is interest rate movements. As for interest rate sensitivity, when the rate goes down by 10 basis point, our K-ICS ratio will fall by 1.5 percentage point. Even though our duration gap is almost zero, that's actually on the available capital side. When you look at the required capital side, when interest rates go down, liabilities will go up as well as assets, thereby having a negative impact on the K-ICS ratio.
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There is substantial impact on our K-ICS ratio coming from interest rate movements. As I mentioned earlier, in order to boost our K-ICS ratio, we will continue to increase the portion of long-dated funds in the portfolio to reduce interest rate risks. We will also try to reduce investment risks so that we can have a better position in terms of required capital. Our year-end K-ICS ratio target is mid-160%.
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You asked a question on the company's view on economic capital. To reflect the new regulatory regime, we are mark-to-marketing the assets and liabilities — both the assets and liabilities are mark-to-market. On the numerator side, we are using the K-ICS approach for capital management. On the denominator side, which is required capital, we're not using the standard K-ICS model provided by the regulatory authority, but rather we're using our internal model that takes into account our own characteristics. For more details, we will communicate to you through the IR team.
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I am Kim Joong-won from the Finance Team. Let me answer your question on what conditions we will be able to resume shareholder returns. Because of the surrender or cancellation reserve, additional reserving, we weren't able to pay dividends to shareholders in 2024, and that is also going to be quite similar for this year as well.
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Because of this additional surrender reserves requirement, even though our earnings have improved, we weren't really able to secure enough distributable earnings. There is a wide recognition in the industry, especially among the life insurance companies, that such a requirement has to be revised. The Life Insurance Association is having a dialogue with the authorities to be able to revise this aspect, and we are expecting a positive outcome to come out soon. Thank you.
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The following question will be presented by Dohwa Kim from Hanwha Investment & Securities. Please go ahead with your question.
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I am Kim Dohwa from Hanwha Investment & Securities. I'd like to ask you a couple of questions. First of all, there was a media report on your completion of the acquisition of Velocity Clearing in the U.S. While the size itself is not very big, I'd like to understand its impact on your earnings as well as your capital solvency ratio. And what is your expectation coming from this particular transaction? The second question is something that we have been asking other insurance companies. You are trying to defend and manage your experience variance, but at the same time, we are seeing an increase in claims payments. I would like to understand any particular policy types or any particular risk or riders that have caused an increase in claims payouts for the first half of this year.
I would also like to understand if this trend will continue for how long. The third question is regarding CSM movements. There was not a substantial change in the CSM adjustment, but rather, there was ordinary adjustment of KRW 360 billion. If you can break this down further by different factors, we would appreciate it. Thank you.
I am Ye-An Kim, Head of Corporate Planning. Let me answer your question on our transaction with Velocity Clearing. As we mentioned, we completed this acquisition process in July. As we are all aware, the growth in the domestic insurance industry has been slowing, and so many insurance companies are looking outward for overseas opportunities.
As you know, we have already entered the Southeast Asian market earlier for life insurance business, and we are currently in the process of expanding the scope of licensing and financial industry and geography as well.
As we acquire Velocity Clearing in the U.S, we will continue to grow this business, but at the same time, we will try to expand our geographical influence beyond Korea and Southeast Asia. We will also utilize this as an opportunity to strengthen our digital capabilities.
As for its impact on our earnings, we have just completed the entire process, so we are working on consolidating our financials, and I believe that we will be able to share with you some meaningful results by the end of the year in terms of pre-tax income.
I am the Head of the Risk Management Team. You also asked about the impact of the acquisition of Velocity Clearing on our solvency ratio. Its impact in the third quarter is plus or minus around one percentage point, which we can tolerate. When we shared with you that our year-end K-ICS ratio target is mid-160%, this particular acquisition deal was already taken into account.
I am the Head of the Business Management Team. Let me answer your question on our claims variance side. Recently, for several years, we have been increasing the portion of health insurance policies in our portfolio. Recently, there was an increase in benefits, or living benefits, including claims for surgeries and diagnosis and other health-related riders.
As you mentioned, we have seen an increase in accident claims and living benefits claims. As we continue to secure more premiums, I believe that this variance will continue to reduce. When we look at the entire duration of these policy trends, because health insurance policies have higher profitability with such new business type, CSM continues to increase. I believe this will have a positive impact on the overall profitability.
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Overall, we expect a positive impact in the long run, but for the short term, we need to focus on better managing our claims variance. In the second half of the year, we are really strengthening claims assessment for potential overuse of medical services. We are also in the process of revising or strengthening underwriting for particular benefits or riders or claims or categories that result in increased claims. Thank you.
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I'm Kim Dong-won from Claims Management. Let me answer your question on our medium and long-term loss ratio projection. While we are seeing an increase in for surgeries and diagnosis benefits, we're seeing an increase in risk premiums for death benefits and other benefits, thereby helping managing the loss ratio. We are expecting about early low 80% loss ratio going forward.
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I am Kim Jun-il from Actuary Team. Let me answer your question on CSM adjustments. Mainly for BEL and RA related adjustments, we call them experience adjustments, and they include the sales impact, actuarial assumption changes, VFA related adjustments, RA adjustments, as well as loss and profit and loss adjustments.
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For the sales related impact, we see experience variance, which results in the decline of CSM balance by the end of the period. In the first quarter, such a negative impact was KRW 430 billion, and in the second quarter, KRW 290 billion. For VFA adjustments, this is mainly related to the changes in discount rate scenarios, which we call the policy rate changes. The negative impact on the CSM in the first quarter was KRW 287 billion, and in the second quarter it was KRW 40 billion.
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For RA adjustments and loss recognition impact, this brought up the CSM by KRW 70 billion, which all resulted in the CSM balance that the CFO reported in the presentation. Moving on to give you more details for VFA adjustments. This year, there was a change to long-term forward rates, which has an impact on the discount rate. The change was about 20 basis point - 25 basis point . Now for a variable guarantee part, the impact for a 10 basis point movement is about KRW 120 billion. the impact on the CSM was KRW 300 billion.
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However, the impact of change to policy rates that I just explained is going to be very minimal in the second half of the year. The VFA adjustment impact on the CSM will be quite small. Compared to what we had in 2024, which was KRW 640 billion, for 2025, the impact will be in the range of KRW 300 billion-KRW 400 billion.
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Moving on to our sales related impact. Because of intensifying competition for health insurance products, as well as cuts in premiums, there is a tendency for existing policyholders to cancel their policies and sign up for new health insurance with better benefits and better riders, and which has an impact on our CSM.
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However, as you can see, our 13th month and 25th month persistency has been improving thanks to our efforts to maintain in-force policies. There was a reduction in the adjustment amount in the second quarter, and we will continue to improve profitability of our products. Going forward, we believe that our year-end CSM balance will be well maintained.
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Thank you.
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The following question will be presented by Yong-Jin Seol from SK Securities. Please go ahead with your question.
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I'm Yong-Jin Seol from SK Securities. I have one quick question on your outlook for new business, for new policy of profitability.
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I am the Head of the Business Management Team. Let me address your question. As was reported earlier, our new business CSM stands at KRW 925.5 billion in the first half of the year. We've been working hard to launch new products, as well as increasing the sales of protection health policies. We've been working to improve multiples of our new products. As a result, in the first half of the year, our CSM multiples stands at 7.2 x, which is similar to the prior year.
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As you can see in the materials, we've been focusing on selling medium- and long-term premium paying policies for whole life products. We've also been working on improving profitability of health insurance. Overall profitability has been improving.
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We will continue with this approach in the second half of the year by improving the share of high margin health insurance policies in our portfolio and continue to offer high margin benefits and riders and new products. We will also continue to adjust the assumed rate to improve the overall profitability so that our new business CSM target of KRW 2 trillion can be met. At the same time, our year-end multiple target is 9x .
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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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With no further questions, I'd like to invite-
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There is one person waiting in the question queue.
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The following question will be presented by [inaudible] from Nikko Asset Management. Please go ahead with your question.
I would like to check what is the target level for your capital as well as any plans to issue subordinated bonds. Thank you.
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I'm the Head of the Risk Management Team. Thank you for your question. Our year-end 2025 solvency, or K-ICS ratio, target is mid 160%, and as of now, we don't have any plan for additional bond issuance. Thank you.
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With no further questions, I'd like to invite our CFO for his closing remarks.
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In the second half of 2025, uncertainty across the industry is expected to persist, driven by volatility in domestic and global financial markets, and intensifying competition in new fields through policy sales. Hanwha Life will mobilize company-wide resources to improve medium and long-term profitability and maintain financial stability by expanding net income based on profit enhancement strategies by profit sources, achieving net growth in in-force CSM through efficiency enhancement of assumption optimization and boosting K-ICS ratio through stronger ALM.
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In addition, to preemptively respond to slow growth in the domestic insurance industry, we will strengthen global business capabilities to secure future growth drivers. In June, we entered the banking sector in Indonesia through equity investment in Nobu Bank. In July, we completed the acquisition of Velocity Clearing, a financial services firm based in New York, to become the first Korean insurer to enter the U.S securities market, further solidifying our position as a global comprehensive financial group.
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Going forward, we will implement differentiated strategies tailored to respective financial markets by strengthening competitiveness in retail finance in Southeast Asia and enhancing platform-based investment capabilities in North America. We aim to implement these initiatives to be a leader in the financial industry. I hope that today's call was a meaningful opportunity for you to better understand Hanwha Life. Thank you.