Good afternoon, I am Kim Sung Jin from the IR team at Hanwha Life. Today's earnings call for the first quarter of 2025 will proceed through consecutive interpretation, and the presentation materials are available on our IR website. Today, CSO Im Seok-hyun will first give a presentation, which will be followed by the Q&A session. Let me now hand over to our CSO.
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Good afternoon. This is CSO Im Seok-hyun. Thank you for joining our earnings presentation. Please note that today's presentation is based on K-IFRS. Let me now begin the report on the earnings for the first quarter of 2025.
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Page one is on earnings highlights. In the first quarter of 2025, we improved mid to long-term financial stability by enhancing operational efficiency through persistency and strengthening profitability of products through the launch of high-margin new products. Our FP organization exceeds 34,000 and the CSM multiple improved to eight times. We secured new business CSM of KRW 488.2 billion.
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The 13th month and the 25th month persistency ratios were 88.2% and 83.1% respectively, indicating a gradual improvement of mid to long-term persistency. We posted separate net profit of KRW 122 billion, and the consolidated net profit of KRW 295.7 billion. Let me now give you more details on the following slide.
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Page two is on protection APE. Due to the base effects of a boom in the market for short-term payment policies last year, protection APE in the first quarter declined year over year to KRW 688.1 billion. We continue to strengthen product competitiveness by introducing new protection products such as the Brain Heart H Health Insurance for brain and cardiovascular diseases and Carebag H Nursing Insurance, maintaining a trend of mid to long-term revenue growth.
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Page three is on sales force and retention. The number of FPs grew by approximately 3,400 compared to the end of last year to 34,419. Also, the sales organization is becoming more stable with improved retention of new FPs.
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Going forward, we will continue to expand the sales organization focused on highly efficient FPs and improve their productivity based on systematic training and support infrastructure to reinforce the industry's strongest channel competitiveness.
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Page four is on new business CSM. In the first quarter, new business CSM reported KRW 488.2 billion, providing more visibility to achieving more than KRW 2 trillion of new business CSM for the whole year. With the share of protection CSM expanding further to 94%, total and general protection profitability rose to eight times and 16 times compared to the first month premium, respectively, both showing improvement. To secure future profit sources, we will continue to focus on selling general protection products and improving profitability.
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Page five is on in-force CSM and persistency. Ordinary CSM increased by KRW 42 billion compared to the beginning of the quarter to KRW 9.2 trillion, thanks to new business CSM inflow and experience variance adjustments. Due to VFA adjustments related to the strengthening of liability discount rates, Q1 in-force CSM recorded KRW 8.9 trillion.
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Nevertheless, following the 13th month persistency improvement last year, the 26th month persistency ratio also improved greatly by 19 percentage points compared to the end of last year to 83.1%, suggesting that CSM efficiency will keep improving based on the continued improvement of mid to long-term persistency rates.
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Page six is on net income. In the first quarter, despite the increase in insurance income, thanks to the absence of additional IBNR reserving, net income fell year over year to KRW 122 billion, mainly due to the drop in investment income resulting from increased financial market volatility.
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However, we are seeing an improving trend in investment income thanks to market stabilization, so we expect the net income trend to improve gradually as well. Consolidated net income was at KRW 295.7 billion, which includes contributions from subsidiaries, such as Hanwha General Insurance and Hanwha Life Financial Service.
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Page seven is on asset management. 92% of our investment portfolios are interest-bearing assets, and the investment yield in the first quarter was 3.05%. Going forward, we will continue to increase investment profits by enhancing yields of our investment portfolios and strengthening risk management simultaneously.
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Regarding our bond and loan portfolio, please refer to the relevant slide. Next, page 10 is on K-ICS and Duration Gap. While we have taken preemptive response measures, such as capital security issuance and stable supply of new business CSM, our first quarter K-ICS ratio is estimated to be down 8 percentage points yea- ove- year to 165%, mainly due to the impact of strengthening liability discount rates.
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We are determined to actively manage financial stability by strengthening our ability to respond to regulatory and market changes and making efforts to reduce required capital. Asset and liability durations are 11.9 years and 11.7 years, respectively, resulting in the Duration Gap of negative 0.33 years.
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Page 11 is on Hanwha Life Financial Service. As our core sales channel, the company continues a growth momentum for two years in a row after turning a profit in 2023. Net income in the first quarter of 2025 saw a big growth year over year to KRW 22.5 billion, suggesting a continued profit growth trend for the whole year.
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Finally, on page 12. To shift focus from protection products by disease types and age groups to providing tailored health protection across life stages by gender, Hanwha Life introduced Lady H Protection Insurance and Ace H Protection Insurance in April, and their new business CSM multiples are expected to range from 16 times to 24 times.
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In 2025, both life and non-life insurance companies are expected to engage in fierce competition in the health insurance market, but we are determined to secure new business CSM by actively introducing products that meet market needs and enhancing profitability of insurance products. Thank you.
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Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone.
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The first question will be provided by Seongjin Kang from KB Securities. Please go ahead with your question.
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I'm Seongjin Kang from KB Securities. Thank you for the opportunity to ask questions. I have two questions. First of all, even though your new business has continued to grow, your CSM balance has continued to see a decline. I believe that a significant factor is VFA adjustment. Last time, the amount of VFA adjustment was about KRW430 billion. If you can provide us with more color on the sensitivity and the factors that have an impact on the VFA adjustment, as well as the impact of your insurance profit and loss on this adjustment.
My second question is related to your ALM strategy. You provided us with some explanation, but I believe that there is some issue with sensitivity of net asset value to interest rate changes. If you can give us more details on your change in ALM strategy, we will appreciate that. I would also like to understand how much you have for distributable earnings for cash dividend in the first quarter. Thank you.
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I am Kim Jun-il, in charge of actuary. Let me answer your first question. As for VFA adjustment, this is related to the yield or investment margin of funds, and if it goes up, then there will be an increase in the CSM. For the first quarter, there was an increase of the CSM by KRW 100 billion because of the funds-related yield. Secondly, it is also related to the gain from hedging. The size of that gain was KRW 20 billion, and it has had an impact on the CSM of the increase of KRW 120 billion.
However, because of the changes in interest rate scenarios and regulatory changes, there was this impact coming from policy rate changes. Based on ERR, there was a movement or decline of 20 basis points. Also, when it comes to liability sensitivity criteria, there was a decline of rates by 36 basis points. When you look at the bell sensitivity for a 10 basis point movement, the amount of bell sensitivity was KRW 110 billion.
This has led to the decline of CSM by KRW 400 billion. In total, the VFA adjustment impact was KRW 280 billion. To give you more information on the difference between ERR interest rate change and the liability sensitivity aspects of change: we assume that a long-term forward rate does not change during the quarters and therefore, the long-term forward rate is fixed, and then we will look at the interest rate sensitivity on the liability side.
However, for ERR, it assumes the overall change of interest rates across the quarters, and that is why there is a difference between the two. Next, I'd like to move on to addressing your second question related to the net asset value sensitivity to interest rate changes. The sensitivity on the asset side to a 10 basis point interest rate movement is KRW 800 billion, while the sensitivity on the liability side to the 10 basis point interest rate movement is KRW 1 trillion.
Therefore, the impact on our capital for a 10 basis point interest rate movement is KRW 200 billion. However, if we include our AC assets in calculating interest rate sensitivity, then before tax, the impact on the asset side is KRW 930 billion. In total, if we factor in AC assets, the sensitivity to a 10 basis point movement is less than KRW 100 billion.
I'm Kim Dong-hee from the finance team. Let me address your question on the size of distributable earnings. Because of the additional burden on surrender value reserving, we don't really have a sufficient pool of funds available for cash dividends. There is a positive correlation between the size of new sales and the size of additional reserving.
As we continue to sell more protection products, there is an increasing requirement for surrender value reserves. Therefore, while our insurance income continues to increase, there is a decline in distributable earnings for cash dividends. A lot of insurance companies in Korea are recognizing the need to improve relevant regulations.
Our top priority is to actively involve in improving relevant regulations so that we can secure enough earnings and enough income that can be distributed back to our shareholders. For 2025, all our executives and employees will continue to do our best to ensure that there will be some shareholder returns. Thank you. https://discord.com/channels/1391591320677519431/1391598206244225204 ?
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The following question will be presented by Dan Wang from JP Morgan. Please go ahead with your question.
Thank you for giving me the chance to ask questions. I have one question. It's about the target K-ICS ratio. As of the first quarter of 2025, your K-ICS ratio remained at 155%. I recall that in the last conference call, the management mentioned about the medium-term target around 170% to 180%. My question would be, would this target be changed, or does the management still think that 170% would be an appropriate K-ICS ratio by the end of this year? Thank you.
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I am Park Su-won from the Risk Management Team. I'd like to answer your question. As you mentioned, our first quarter K-ICS ratio is 155%, but we are making a lot of efforts, including continuing to secure new business CSM and actively involved in improving the K-ICS related regulations that FSS is pursuing.
We are also working on increasing our long-term bond purchases to reduce interest rate risk amount as well as investment risk amount in order to respond to strengthening of liability discount rates. These efforts will continue into the second half of the year. Therefore, our guidance for K-ICS ratio by the end of 2025 is mid-160%. However, internally, we have this internal target of making our K-ICS ratio to be around 170%.
Does the answer cover everything you need?
Yes. Very clear. Thank you.
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The following question will be presented by Jiwon Kim from Daol Investment & Securities. Please go ahead with your question.
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I'm Kim Jiwon from Daol Investment & Securities. Thank you for this opportunity. I would like to ask you two questions. In your previous answer, you provided us with some details and you mentioned that if we include AC assets, then the sensitivity to a 10 basis point interest rate movement will be reduced. However, based on the fact that you have been increasing the portion of interest-bearing assets, it seems that there has been an increase in liability-side sensitivity to interest rate changes.
I'd like to better understand your duration matching strategy going forward. Secondly, we believe that there will be inevitable downward pressures on the K-ICS ratio overall due to the strengthening of liability discount rates. In that context, it will be important to continue to secure new business CSM. You previously communicated your new CSM target, and I wonder if this will still be relevant. I would also like to understand if you have any plans to issue capital securities in the second half of the year. Thank you.
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I'm the Head of the Risk Management Team. Let me answer your question on duration gap management strategy. As you mentioned, the strengthening of this liability discount rate has had an impact on extending the liability side duration. Therefore, when you look at the duration gap, liability durations are longer than the asset duration. To respond to this situation, in the first quarter, we increased the purchase of long-term bonds, including bond forwards, and we will continue with this strategy in the second quarter as well.
If we find that market rates continue to decline and liability spreads continue to grow, then we will consider additional purchasing of long-term bonds. The impact of this liability discount rate on solvency and capital management for insurance companies is very significant. Therefore, not only Hanwha Life, but also other companies are working together with the association to offer recommendations and making suggestions to the authorities so that the liability discount rate strengthening schedule can be relaxed.
However, internally, we are working based on the assumption that the already announced schedule will be implemented, and our target duration gap for the end of 2025 is either zero or longer asset duration than liability.
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I am the head of our finance team. I would like to answer your question on our future issuance plans. With the continued strengthening of discount rates as well as falling interest rates, there are downward pressures on our K-ICS ratio.
Therefore, we are actively considering additional issuance of capital security. However, no specific decisions have been made yet, and when we make such decisions, we will communicate them with the market.
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I'm Kang Jinhee, Head of the Business Management Team. Let me answer your question related to our new business CSM. Despite the regulatory strengthening and the falling interest rates, we were able to achieve the first quarter new business CSM of more than KRW 500 billion, as was presented as our guidance.
We continue to work on increasing our new business CSM by introducing new products and revising the existing products and increasing the portion of general protection policies. These are part of our efforts to increase the profitability of new business CSM.
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As a result of these efforts, as you can see on our slides, in the first quarter, our CSM multiples have improved to 8 times. When you look at the whole life and general protection overall, their profitability and CSM multiples have improved on a year-over-year basis.
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As you can see, these efforts, these are CSM multiples, will continue into the second half of the year, and we will continue to work on improving the profitability of not just the whole life, but long-term products and general protection products.
We will focus on selling high-margin products to improve profitability so that we can meet the guidance for the whole year of new business CSM of more than KRW 2 trillion and improving their CSM multiples.
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I'm Seol Yongjin from SK Securities. Thank you for the opportunity to ask questions. My first question is on your basic capital ratio in the first quarter. You communicated that your basic capital ratio in the fourth quarter last year was 74%, and I'd like to know the percentage right now because the FSS is moving in the direction of managing solvency in terms of thinking capital ratio.
And as for distributable earnings for cash dividend, because of the regulatory issue surrounding the renter value reserve, if this reserve declines, then there will be a negative impact on the basic capital ratio. So I'd love to get more color on any ongoing discussions regarding the regulatory changes. And my second question is related to the KICS movement.
With increasing new business CSM, there will be a positive impact on the KICS ratio, but then when you have increased in-force CSM, this will have a negative impact on the required capital side, which also has an impact on your KICS ratio. And I wonder if the size of both ends are similar, and what is the impact on your KICS movement. Thank you
I'm the head of the risk management team. Let me address your question on our basic capital ratio. As of the end of 2024, the basic capital ratio was 73.8%, and in the first quarter, while we are still working on the numbers, it is estimated to be mid 60%. The authorities are not yet finalizing on the timing of the introduction and the level of enforcement. The position of the authorities is that they will make sure to have enough conversations with the industry to increase the level of acceptance.
They're also thinking of giving a five-year or more of transitional periods so that there will be a soft landing for this new type of solvency regulation. Because this is a common issue faced by the entire industry, we are responding to this through and in collaboration with the Life Insurance Association. At the same time, internally, we are making various efforts to reduce the required capital by operating a task force team.
We expect that the solvency regulations based on basic capital will continue to be strengthened going forward. We will make various efforts so that we have the internal medium and long term basic capital ratio target of 100%.
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Moving on to the K-ICS movement on page 10, there is a 4 percentage point negative impact on the K-ICS ratio categorized as other. Under that, you can find that it says because of the increase in in-force contracts, there is a natural increase in required capital. Here, to give you more breakdown, compared to the end of 2024, as of March, there was an 8 basis points change or decline in the liability spread, which has a negative impact of 0.8 percentage points on the K-ICS ratio.
There was some in-force CSM adjustments, which had a negative impact of 1.8 percentage points. Also, because of the increase in in-force CSM, there was an increase in required capital, which also once again had a negative impact of 1.4 percentage points.
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The following question will be presented by Jeong Jun-seop from NH Investment & Securities. Please go ahead with your question.
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Facing greater market volatility caused by regulatory changes and falling interest rates, Hanwha Life has been mobilizing company-wide capabilities and resources for our top two management priorities of profitability enhancement and financial stability. As a result of these efforts, three domestic credit rating agencies upgraded our rating in March to the highest level of AAA stable. Also on May 8th, Fitch, a global rating agency, has upgraded our rating from A positive to A+ stable.
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While the business environment remains challenging with domestic and global market volatility due to various factors such as US tax policy, we will further strengthen competitiveness in core areas such as products and channels from a longer-term perspective so that we can secure a strong foundation for sustainable growth. I hope that today's conference call was a meaningful opportunity for you to better understand our company. Thank you.