Good afternoon. This is CFO. Thank you for joining our earnings call. Please note that today's presentation was prepared based on K-IFRS. Let me now begin the report on the earnings for fiscal year 2024.
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Page one is our earnings highlights. In 2024, we strengthened fundamental competitiveness in core areas such as products and channels, resulting in excellent financial performance with meaningful growth of both the top line and the bottom line.
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We have the strongest channel competitiveness in the industry with nearly 31,000 financial planners and have continued to launch trendy market-leading products. Thanks to these efforts, our new business APE and the protection APE grew 18% and 28% year-over-year, respectively.
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After-tax income also grew 17% year-over-year to KRW 726 billion, demonstrating Hanwha Life's strong fundamentals. Let me give you more details on the following slides.
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Page two is on new business APE. Despite intensified competition in the industry and economic slowdown, new business APE posted KRW 3.9 trillion, up 18% year-over-year, and the share of protection APE increased to 81%.
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In particular, our protection APE grew 28% year-over-year, thanks to the launch of differentiated protection products that satisfy customer needs, including The Signature Cancer Insurance, our bestseller, The H Health Insurance and The H Long-term Care Insurance.
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Page three is on sales force and persistency. In 2024, the FP workforce increased by around 4,000 compared to the prior year to 31,005. The 13th month and the 25th month persistency ratios also improved to 89.9% and 63.8%, respectively.
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Going forward, we will strive to strengthen our business fundamentals by improving sales efficiency as well as business quality.
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Page four is on CSM. New business CSM has exceeded our guidance of KRW 2 trillion for two consecutive years, posting KRW 2.1 trillion in 2024. The portion of general protection CSM further expanded to 73% thanks to the strong portfolio focused on highly profitable general protection policies.
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Ordinary CSM increased by around KRW 510 billion to KRW 9.7 trillion on the back of new business CSM and experience variance adjustments. However, our in-force CSM at the end of 2024 recorded around KRW 9.1 trillion due to VFA adjustments from economic assumption changes, including strengthened liability discount rates.
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On page five, separate net income posted KRW 720.6 billion in 2024, up 17% year-on-year, showing a solid growth trend since introduction of new revenue recognition.
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Consolidated net income recorded KRW 866 billion, thanks to good earnings posted by major subsidiaries, including KRW 382.4 billion from Hanwha General Insurance, KRW 151.9 billion from Hanwha Life Financial Service, and KRW 45 billion from the Vietnam subsidiary.
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Page six is on insurance and investment income. First, insurance income posted KRW 506.3 billion based on solid CSM amortization gains of around KRW 1 trillion, and when excluding IBNR-related one-off factors, it is approximately KRW 636 billion. Investment income posted KRW 390.6 billion, thanks to stable interest and dividend gains and strategic asset management.
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Page seven is on asset management. 91% of our investment portfolio are interest-bearing assets, and investment yields remained higher than the liability crediting rate for every quarter in 2024, posting an investment yield of 3.55%. We will continue to increase investment profits by enhancing asset portfolio profitability and strengthening risk management.
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With regards to our bond and loan portfolio, please refer to pages eight and nine. Now on page ten is K-ICS and Duration Gap. Despite greater volatility around K-ICS across industry due to falling interest rates, strengthened liability discount rates and the Insurance Reform Committee meetings, our fourth quarter K-ICS ratio is projected to be 165%, driven by new business CSM and issuance of capital securities.
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The asset duration and liability duration are 11.1 years and 10.5 years respectively, with the duration gap improved to 0.26 years.
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Page 11 is on Hanwha Life Financial Service. As our core sales channel, the company's net income more than doubled year-over-year to KRW 151.9 billion in 2024.
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Going forward, Hanwha Life Financial Service will continue to utilize its highly efficient sales organization and digital infrastructure to reinforce its competitive edge in the insurance industry, where the importance of the GA channel is growing.
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Page 12 is on the business environment outlook and strategies for 2025. The domestic insurance industry is faced with rapid changes, such as changes in demographics and the financial environment, as well as accelerating technological innovation. Against this backdrop, Hanwha Life is determined to secure future competitiveness by strengthening global market competency and digital capabilities while responding to rapid market changes with strong sales and financial prudence.
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Finally, page 13 is on 2025 guidance. In the new year, we will keep our core business competency across the value chain and strengthen financial stability through effective responses to regulatory and market changes.
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To this end, we aim to secure a business organization of 36,000 people, achieve a 15% growth in general protection APE, more than KRW 2 trillion of new business CSM inflows and over KRW 9.6 trillion of inforce CSM, and manage our K-ICS ratio to be higher than 170%. Thank you.
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We would now like to have a Q&A session.
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Now Q&A session will begin. Please press star one, 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 Kim Do-h a from Hanwha Investment & Securities. Please go ahead with your questions.
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I'm Kim Do-h a from Hanwha Investment & Securities. Thank you for your earnings presentation. I could see that you were able to defend your capital position despite the falling interest rate environment. And also your result was pretty good in terms of duration matching between liability and asset. I have two questions. The first question is regarding your CSM movement. I could see that you have good sales efficiency. Your new business CSM has been solid. However, across the year for 2024, there has been an increase in cancellation and lapses, which led to a negative impact on your CSM balance. This is the case across the industry.
However, it seems that your negative impact on your CSM balance seems to be larger than your competitors. In addition to your continuous efforts to increase persistency, I believe that you need some well thought strategy to address this issue. I'd like to learn more about that. The second question is related to your dividend policy. This year, other than a few insurance companies, it seems that other insurance companies won't be able to pay out dividends. This may require some adjustment in your capital policy. I'd like to understand your current situation regarding the surrender and lapses, and I would like to understand when you will be able to secure distributable income for dividend payout. Thank you.
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I am Kim Jun-Hyeok from the Actuary team. As he mentioned, we have had some negative impact on our CSM balance because of renewal or change into new policy. The impact on our CSM balance in a negative way was KRW 870 billion for full year 2024. However, when we look into the outlook for 2025, we believe that the affected amount on the CSM balance is going to be around KRW 800 billion.
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This is because we expect a net increase to the CSM balance of KRW 1.5 trillion, thanks to new business CSM inflow as well as CSM amortization. When we consider the VFA effect, we believe the net increase is going to be around KRW 500 billion.
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I am Yang Kil-seok from the Insurance Business Investment team. I'd like to comment on our persistency enhancement efforts. At Hanwha Life, we are focusing on increasing persistency even when new policies are written. For each sales team head, we have put in place a system where they check whether any new policy is going to have some concern regarding persistency or not. Persistency results are also included in the evaluation and KPIs of sales organization heads. These are some of the efforts we're making to increase persistency.
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To enhance our medium to long-term persistency, whenever there are any inquiries or complaints regarding their policies from customers, such complaints will be notified to responsible people right away through notification and text messages so that we can reach out to customers who have concerns and help them continue their policies. At the customer centers, when there is any inquiry for cancellation of issued policies or any inquiries regarding persistency, we have put in place the Smile Center that is responsible for addressing any concerns from our policyholders so that we can maintain persistency. Going forward, we're going to formulate a consultative body for persistency management, including our subsidiary, so that we can continue to enhance short-term as well as long-term persistency of our policies.
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I am Kim D ong-hee from the Finance team. Regarding your comment or question on surrender reserves, it is true that we continue to increase our new business and new policies, which result in an increase in surrender reserves. As we continue to sell new protection policies, our surrender reserve requirement is increasing. That is not only for Hanwha Life, but also the case for other insurance companies in the industry. That is why a lot of life insurance companies, even though their earnings increase, they have tax issues and other implications which make it difficult for them to support distributable income. That is why at the Life Insurance Association and also across the industry, we're working hard to address the situation.
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In the first half of this year, life insurance companies in Korea will work together to come up with a measure or plan to improve regulations on this particular issue and submit this plan to the regulatory authorities. We will continue to respond to regulatory improvements and changes so that we can secure sustainable income for dividends for 2025. Thank you.
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The following question will be provided by Seol Yong-j in from SK Securities. Please go ahead with your question.
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I'm Seol Yong-j in from SK Securities. Thank you for this opportunity to ask you questions. My first question is related to the K-ICS ratio. For January, once again, strengthened by political discount rates will be applied, and I'd like to understand the impact of such strict regulation on your K-ICS ratio. In the fourth quarter, you issued subordinate funds, and I understand that you're preparing for another issuance of hybrid bond in 2025. I'd like to know how much room you have for capital securities issuance this year. I would also like to understand the K-ICS movement in more detail across the year. Thank you.
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Park Su-geon from the Risk Management team. There was an extension of the last observed maturity in 2025 and also the long-term forward rate will be adjusted by 25 basis points, which has had an impact on our K-ICS ratio. To give you more details about the K-ICS movement compared to September 2024, in December 2024, the K-ICS ratio has changed from 164.1% to 165%. Let me first give you details on the negative factors.
Between that period, there was a drop of the 10-year government bond in Korea by 12 basis points, while there was an increase in treasury bond yield in the U.S. by 70 basis points, which led to a negative impact on the K-ICS ratio by 6.8 percentage points. Regarding regulatory changes driven by the Insurance Reform Committee meeting, the negative impact was 6.5 percentage points. Because of the increase in required capital, there was a negative impact of 6 percentage points.
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Moving on to the positive factors. There was a 3 percentage point increase to our K-ICS ratio, thanks to new business CSM in the fourth quarter. Because of a capital security issuance of [KRW 800 billion], that was a positive impact of 6.2 percentage points. There was more clarity on K-ICS calculations from the financial authorities, which led to the improvement in the valuation of equity shares that we have in our holding-owned subsidiaries, and the positive impact was 4 percentage points.
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I am Kim Dong-hee from the Finance team. About your question on how much room we have for capital security issuance, as of the end of 2024, we have room of issuing KRW 3.5 trillion as capital securities.
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The following question will be presented by Theo Hadiwidjaja from JP Morgan Asset Management. Please go ahead with your question.
Thank you very much. I have two questions. The first one is, can you talk about your exposures to overseas commercial real estate as of fourth quarter last year? The second question is, in terms of your plan to improve your K-ICS ratio in 2025, you would like to upgrade the risk management. I think one of the things that you would like to do for this year, and also with rates being lower, can you talk more about, other than issuing some debt, what other things that you can execute to improve your K-ICS ratio? Thank you.
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I'm from the Investment Planning team. About your first question, our exposure to overseas real estate properties in the fourth quarter of last year is KRW 2.8 trillion.
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I'm the Head of the Risk Management Team. Let me explain our plans to boost the K-ICS ratio in 2025. There are a number of risk factors, including strengthened regulations as well as declines in interest rates in 2025, which will have a negative impact on our K-ICS ratio. Our basic approach or strategy is to continue to increase our new business CSM, which will have a positive impact on our K-ICS ratio by 12- 13 percentage points.
Furthermore, we will be utilizing re-insurance for risk coverage for diseases and other kind of benefits so that we can have more room to cover. We will also implement measures to reduce investment-related risks. There is a sensitivity to interest movements when it comes to K-ICS, so we will continue to monitor the interest rate movements and take necessary action when needed. By doing all of this, our plan or goal is to increase our K-ICS ratio to be above 170% in 2025.
Is there anything else you would like to ask?
Maybe just to clarify, in terms of opportunity, CRE has the asset quality, and also in terms of the new regulations and the lower rate environment, how much of negative impact on your K-ICS?
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I'm from the Investment Planning team, and about your question on the asset quality of our overseas CRE. Because of the sluggish real estate market overseas, there was some decline in the valuation or prices of these properties, but all the investments that we have been monitoring on our watch list, all their losses have already been recognized. There's no additional loss that we will recognize in the future.
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I'm the Head of the Risk Management Team. On your follow-up question, the impact of solvency regulation and interest rate decline. First of all, the impact of regulatory changes. In 2025, LOP is going to be further expanded, and the long-term forward rate is going to go down by 25 basis points, which will have a negative impact on our K-ICS ratio by 9 percentage points. Regarding the interest rate sensitivity, when the interest rates go down by 10 basis points, it will have a negative impact of 2 percentage points on our K-ICS ratio. Thank you.
Was this answer sufficient for you?
Thank you very much.
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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 the presentation. I have two questions. The first one is about the target solvency ratio. Your slides provide the guidance that 170% of the K-ICS ratio in 2025. I want to know on the forward-looking perspective, what is the company's view on the target solvency ratio in the next two or three years? The second question is about the dividends. I know that for this question, the management has commented that your company will try to make sure that dividend payout in 2025 and is still in a discussion with the regulator. My question would be what could be the concrete plans or the measures that the company would take to guarantee their distributable earnings for the dividend payout? Thank you.
Can you repeat your first question?
The first question is about their target solvency ratio from the company's view. What could be the comfortable target solvency ratio?
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I'm in charge of the Risk Management team. About your question on our more longer-term outlook on our solvency ratio. From the horizon by 2027, there will be continuous strengthening of liability discount rates related regulations, which will definitely have a negative impact on our solvency ratio. But we will continue as we have been doing to improve our new business CSM and reduce required capital.
Furthermore, I'd like to mention that recently the supervisory authorities announced the plan to allow insurance companies to utilize their internal models. So in 2025, they will receive applications for internal models, which will later be approved. Then starting from 2026, insurance companies can use their internal models for required capital calculation. We don't have any concrete guidance yet as to the potential impact of using the internal model on our solvency ratio. We will have to wait and see, but Hanwha Life will apply for the approval of our internal model, which is likely to reduce our required capital level.
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For the next three years, as I mentioned, regulations regarding liability discount rates will continue to strengthen, but we will possibly be able to use our internal model for risk capital calculation. All in all, in taking active measures, our medium-term solvency ratio target is between 170%- 180%.
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I'm Kim Dong-hee. I'd like to answer the question on what our concrete plans are to secure distributable earnings. We will continue to work to improve regulations regarding surrender reserves so that we can secure funds for dividend payout. At the same time, we will continue to drive up our net income. When calculating distributable earnings, we are supposed to take off unrealized gains.
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We would like to change the direction in a way that unrealized gains and unrealized losses can be hedged against each other. We will work to propose an interpretation of the legal position on calculation of distributable earnings. Thank you.
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The following question will be presented by Jung Jun-seop from NH Investment & Securities. Please go ahead with your questions.
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Jung Jun-seop from NH Investment & Securities. I have two questions. The first question is on your new business targets for 2025. I'd like to understand the volume of new business you're targeting for 2025, as well as your target CSM multiple. The second question is, in order to secure distributable income, I'd like to understand if you have any plans to dispose some of your assets, as was the case of selling your Donggyo-dong building. If you have any similar plans, please share with us.
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I'm Baek Jae-min from the Business Management Team. Let me address your questions. First, on your second question on whether we have any plans for disposing of any property. We don't have such a plan yet. As for the first question on our efforts to improve the new business CSM in 2025, as well as our profitability. In 2024, new business CSM, including a 28% growth on a year-over-year basis of protection new business APE, was about KRW 2.12 trillion. In 2024, interest rates continued to fall and there were some changes to assumptions. The entire volume itself or the amount has been affected. Thanks to efforts in general protection policies, for two years in a row, we were able to achieve new business CSM of more than KRW 2 trillion.
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Going forward in 2025, we would like to continue to take advantage of the separation between product development and sales by utilizing our highly efficient sales organization. We will maintain an appropriate level of whole life as well as other types of insurance, and at the same time improve and increase the share of general protection policies which have higher CSM profitability, so that we can achieve a new business CSM of more than KRW 2 trillion in 2025 as well.
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Can you comment on the CSM multiple?
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I'm Park Jae-yong again. When you look at the fact sheet, you can find that the new business [audio distortion] was 7.8 in 2024, and we will work hard and strive to improve the profitability of our new business so that CSM multiple can be more than nine. Thank you.
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Currently, there are no participants with questions. Please press star one, star and one to give your question.
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If no further questions, I'd like to invite our CFO back for his closing remarks, and with that, we would like to conclude this earnings conference call.
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In 2024, amid high uncertainty in the domestic and global markets, Hanwha Life was able to achieve a solid top-line growth and maintain strong earnings fundamentals and financial stability.
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In 2025, we will pursue digital innovation through AI adoption in all areas encompassing customers, sales, and products to improve the value of our insurance business while enhancing competency in the global market. Furthermore, we will respond to market changes proactively and actively pursue regulatory improvements to enhance shareholder value.
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I hope that this earnings conference call was a valuable opportunity for you to join us on our journey for excellence. Thank you once again for your continued trust and support.