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Samsung Fire & Marine Insurance Co Ltd
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Good morning. I am [ Kim Jae-hong ], Head of the IR team. Thank you for joining the company's third quarter 2023 earnings conference call. We will begin with the presentation on business and earnings highlights by our CFO and EVP, Kim Jun-Ha, after which we will have the Q&A session with answers provided by the management team. The entire session, including the Q&A, will last a total of 1 hour. Now with that, I will hand it over to our CFO, Kim Jun-Ha, for the earnings briefing.
[Foreign Language]
[Interpreted] Good morning. I am Jun-Ha Kim, CFO of Samsung Fire & Marine Insurance. I will present on the third quarter '23 earnings results.
[Foreign Language]
[Interpreted] Third quarter '23 net profit attributable to majority interest was KRW 428.2 billion, up 26% versus previous year's KRW 339.8 billion. On a cumulative basis, net profit reported KRW 1,643.3 billion, which is a 27% year-over-year increase from KRW 1,293.7 billion.
[Foreign Language]
[Interpreted] Next is on business breakdown. First, for the long-term insurance, insurance profit for Q3 reported KRW 438.9 billion, up 24.1% year-over-year. Cumulative profit was KRW 1,300.4 billion, which is up 27.4% year-over-year.
[Foreign Language]
[Interpreted] Total CSM volume as of end of the third quarter was KRW 13,259.3 billion, expanding KRW 604.5 billion versus end of last quarter and KRW 1.58 trillion YTD.
[Foreign Language]
[Interpreted] Through the rollout of new products into our target markets and strategic approach to market with portfolio improvement at its core, protection new business recorded monthly average premium of KRW 17.4 billion in Q3, up 22.5% year-over-year; and CSM multiple was 22.3x, which is an improvement of 9.2x versus last year.
[Foreign Language]
[Interpreted] As a result, new business CSM for Q3 was KRW 1,164.2 billion with cumulative basis new business CSM at KRW 2,606.8 billion.
[Foreign Language]
[Interpreted] Despite the rise in level of social activity and use of medical services following the start of the endemic, experience variance in the third quarter was KRW 72.6 billion, sustaining a steady trajectory with cumulative figure coming in at KRW 225.6 billion.
[Foreign Language]
[Interpreted] During Q4, we will continue on building portfolios with quality policies, rigorously managing seasonal effects of claim loss and excess medical treatment, while endeavoring to enhance persistency ratio and other efficiency metrics so as to solidify the basis for steady future earnings.
[Foreign Language]
[Interpreted] Next is on the auto insurance. Auto insurance revenue was KRW 1,418 billion in Q3, a 0.2% marginal year-over-year increase due to a turnaround in profit and its deepening market competition. Cumulative revenue was KRW 4,199.1 billion, flat year-over-year.
[Foreign Language]
[Interpreted] Driven by higher traffic during the holiday season, loss ratio for Q3 was 81.7%, a rise from the first half level, but we saw 1.6% decline year-over-year on the back of stronger measures against natural disasters and stronger claims management.
[Foreign Language]
[Interpreted] All in all, Q3 insurance profit came in at KRW 41.9 billion with cumulative figure at KRW 243.8 billion, recording an increase of 5.7% year-over-year, sustaining a steady trend.
[Foreign Language]
[Interpreted] During Q4, we plan to focus on claims management in light of seasonal volatility so as to solidify auto insurance as a profit-making business while we continue to pay efforts behind improving the system and claims efficiency. As such, we will make thorough strategic preparations to deal with the rollout of recommendation and comparison service for insurance products by the platforms slated for early next year.
[Foreign Language]
[Interpreted] Next for the P&C insurance. Third quarter profit came in at KRW 52.7 billion, reaching KRW 194.8 billion on a cumulative basis while increasing 28.2% year-over-year.
[Foreign Language]
[Interpreted] Insurance revenue driven by specialty and marine insurance and overseas business growth reached on a cumulative basis KRW 1.97 billion, expanding 9% year-over-year. Thanks to margin-focused underwriting policy and decline in high-risk accidents, loss ratio came in at 57.6% on a cumulative basis, which is a noteworthy improvement of 3.1 percentage points.
[Foreign Language]
[Interpreted] In Q4, we will thoroughly prepare against natural disasters and profit volatility while conducting [ x anti checks and exports ] loss management and continue to pursue profitability management and diversification of our revenue portfolio so as to attain steady uptrend in both revenue and bottom line.
[Foreign Language]
[Interpreted] Next is asset management. Despite the impact from bond trades executed to enhance running yield and KRW 150 billion of losses on sales, on an AUM basis, Q3 investment profit reported KRW 484.4 billion, which is up 4.1% year-over-year.
[Foreign Language]
[Interpreted] On a cumulative basis, driven by investment efficiency enhancements and agile response to market movements, investment yield was 2.95%, up 0.58 percentage points year-over-year, with investment profit of KRW 41,693.2 billion, an increase of 17.4% year-over-year.
[Foreign Language]
[Interpreted] In Q4, concerns over prolonged inflation and high interest rate and slowing of growth as well as internal/external uncertainties, including widening volatilities of the asset price and the financial markets, are expected to continue. However, through rigorous risk management against possible financial market deterioration and by identifying investment opportunities for undervalued assets and continuous efforts behind making the portfolio more efficient based on higher-yielding assets, we will fortify the foundation for future earnings.
[Foreign Language]
[Interpreted] In the face of heightening global market volatilities and macro headwind of high inflation and low growth, SFMI has responded strategically to changes in regulatory regime and competitive dynamics, driving good business performance in 2023.
[Foreign Language]
[Interpreted] In Q4 as well, we expect difficult operational backdrop will continue, while there will also be a greater seasonal impact on P&L.
[Foreign Language]
[Interpreted] The company, across all of its organizations, will become more agile in responding to market changes to close financial year '23 as the best business year and at the same time, fully prepare for myriad of changes in the business environment expected in 2024 so that we may drive growth powered by fundamentals and expand steady stream of earnings underpinned by efficiency innovations. Thank you.
[Foreign Language]
[Interpreted] Next, we will begin with the Q&A. [Operator Instructions]
[Interpreted] Now Q&A session will begin. [Operator Instructions]
[Interpreted] The first question will be presented by Hongjae Lee from Hyundai Motor Securities.
[Foreign Language]
[Interpreted] My first question relates to the adjustment in the premium levels as was seen from the press article. There was a news on the auto insurance premium adjustment. So can you provide us with an update on how the auto insurance premium would look like going forward? And also, it seems there's going to be also another pricing hike for medical indemnities by the end of the year. From the company's perspective, what is your target level? Or what do you think is the necessary amount of hike that is required? Second is with regards to more stringent criteria and guidelines regarding the discount rate and what impact that would have on your UFR and [ LAP ]. And what is the implications on your K-ICS figure?
[Foreign Language]
[Interpreted] I am [ Lee Sang-yung ]. I will respond to your question as the head of the auto insurance.
[Foreign Language]
[Interpreted] So recently, there's been some press articles on the possible cuts for the auto insurance premium. But at this point, there is no specific decision that has been made.
[Foreign Language]
[Interpreted] It is true with regards to the overall macroeconomic backdrop with higher interest rates, et cetera, there has been, during the roundtable session with the authorities, a request for a further cut in the auto premium rate at an extent that is faster than previous years and at a higher level. However, with regards to the actual cut and the premium, if you look at a specific segment of the auto insurer market in the mid-tier, their loss amount has actually been expanded. So there are multiple factors that would need to be considered.
[Foreign Language]
[Interpreted] Also, on top of that, typically, winter season is where we see elevated level of accidents and also loss ratio driven up, and we have yet to reach an agreement in terms of the repairs unit cost. So the prices and the insurance-related inflation is an aspect that needs to be determined at this point in time. So in light of all of these factors, we have made a request to the authorities that we set the premium level at a rational level in light of all these factors.
[Foreign Language]
[Interpreted] And the team leader of the long-term product development team, responding to your question about the medical indemnities, we do not yet have a final number that had been determined, but looking at each of the generation of these medical indemnity product.
[Foreign Language]
[Interpreted] Regarding the first-generation medical indemnity, the loss ratio is still in excess of 100%. Looking at some of the key levers, there is a room for additional cuts in the rates in light of the overall claims that is being paid, and we will try to reflect that in the trajectory going forward.
[Foreign Language]
[Interpreted] So for the second and third generation, there are factors that would need to push out the pricing level. And also, for the third generation, there is a bigger factor that calls for a higher increase.
[Foreign Language]
[Interpreted] So up until the time we reach a final conclusion on the extent of this adjustment, we will look at each of these factors, and we will make sure that those adjustments are firmly based on the business performance.
[Foreign Language]
[Interpreted] I am Che Bu Gyu. I will respond to your question about the discount rate on the liabilities.
[Foreign Language]
[Interpreted] As you know, in July, the authorities have issued a guideline with respect to the discount rate on the liability side, including UFR and also the extension of the [ LAP ] period.
[Foreign Language]
[Interpreted] So with the lowering of the liability discount rate, the available capital is going to go down. But in the case of our company, our duration is overmatched at this point. So the interest rate risk is also going to go down quite significantly. So compared to our peers, we think that the impact is going to be quite minimal for us.
[Foreign Language]
[Interpreted] Thank you.
[Interpreted] The following question will be presented by Myung Wook Kim from JPMorgan.
[Foreign Language]
[Interpreted] I have 2 questions I wish to ask. If you look at this year's profit, it has gone up quite significantly. So if we think about the dividend coming from the company on a year-over-year basis, would it be reasonable for us to expect at least a double-digit growth in terms of the dividend paid out? Or are there some other factors that we need to be mindful of in the market? Second question is on your long-term business. Now at this point, compared to your monthly average premium, your new business CSM seems to be quite large. Is this sustainable in the future? Or is this something that is just particular for this year? And do you expect to go through some normalization for these numbers?
[Foreign Language]
[Interpreted] On your first question, this is CFO. I will respond to your first question.
[Foreign Language]
[Interpreted] So you are correct. In terms of the size of the profit, it has been up trending. But as you would also appreciate, every fourth quarter, we see more natural disasters and higher-risk accidents and also heavy snowfall, for instance. And that was the case Q4 of last year as well where we booked quite significant amount of losses. So we will wait and see how Q4 plays out before we make the final decision on the amount of distribution. And also, there are some guidelines that's been issued by FSS that will need to be applied at the end of the year when we close our accounts. But once again, the company will do its utmost to make sure that we are able to provide you with a progressive dividend payout.
[Foreign Language]
[Interpreted] This is [ Lee Yong-bok ]. I am the team leader of long-term insurance strategy responding to your question. Yes, you are correct. We have seen new business CSM continuously go up. And one of the key drivers behind that is a shift in focus onto higher CSM-yielding products, including the age term product and [ lab-supported ] product.
[Foreign Language]
[Interpreted] So in terms of the overall volume of new business CSM, as was the case in Q3, in the fourth quarter as well, we will continue to provide more segmented products that best fits specific customer targets, which will be a key driver behind continuously expanding the revenue from the new businesses. And we will also, for next year, endeavor to make sure that we drive that volume growth.
[Foreign Language]
[Interpreted] On the quality side, which is represented by the CSM multiple, maybe the multiple level may not be as high as what we've seen during the third quarter. But through continuous efforts in improving the portfolio, we will make sure that we are able to leverage that growth of the CSM multiple, at least on par with what we've seen previously for both Q4 and next year.
[Foreign Language]
[Interpreted] So just to summarize, we will be driving increase and improvement in terms of the volume, the [ queue ] aspect and also at the same time, enhance quality as well.
[Interpreted] The following question will be presented by Seung-Gun Kang from KB Securities.
[Foreign Language]
[Interpreted] When you were explaining about the dividend plan for the future, you mentioned that there is some additional guideline that would be applied at the end of the Q4. I presume that this has to do with the loss progression coefficient and incorporating the performance pay into the cash flow. I would like to know what impact that will have on the overall CSM line item. And it seems like the adjustments that were made regarding the incurred accident had a big impact on the experience variance. I would like to know whether going forward that this would continue to be a factor. Second, when you talk about your medical indemnity products, you talked about the possibility of a rate cut for generation 1 and then rate hikes for other generations. I understand that the future premium hike is incorporated or is reflected in the cash flow calculations. So would like to know if there is a rate cut for your generation -- the first-generation product. Would that have been reflected in the cash flow? Would like to get that insight as well.
[Foreign Language]
[Interpreted] So once again, this is [ Lee Yong-bok ], the team leader of the long-term insurance strategy. On the guidelines, the incurred claims liability-related guidelines have already been prenotified by the authorities, FSS. And for our company, the impact is not going to be significant.
[Foreign Language]
[Interpreted] And we think that, that impact is going to have a narrowing effect of the experience variance.
[Foreign Language]
[Interpreted] And regarding the performance pay aspect, there has not yet been any guideline that was issued. But including with other factors -- other adjustment factors, we are closely looking at the potential impact that it may have on Q4.
[Foreign Language]
[Interpreted] And any other plus or minus factors on the loss ratio related excluding the expense at the end of the year, at this point, the CSM adjustment factors, we do not think are going to be that big. But once we have those specific numbers, we will communicate that with you.
[Foreign Language]
[Interpreted] Please bear with us one moment.
[Foreign Language]
[Interpreted] Once again, this is [ Lee Yong-bok ], responding to the second part of your question for the medical indemnity products. For the first-generation products, there is a factor for a cut. For second and third generation, an increase in pricing.
[Foreign Language]
[Interpreted] And once again, that statement is based off of the historical figure that we are seeing. So it is based upon the actual historical that we calculate the assumption. Right now, we're in the process of reviewing those different aspects. And once we have that confirmed number, we will provide you with the detail. But even at that, we do not feel that there would be a big impact.
[Interpreted] The following question will be presented by Hye-jin Park from Daishin Securities.
[Foreign Language]
[Interpreted] From Daishin Securities, Park Hye-jin, asking you 2 questions. First one is a question on your CSM adjustments. How was the assumption changed? Because we see that the negative expense has actually widened. And should we, going forward for next year, also assume this level of CSM adjustment? Second question is on your bond trade. As the backdrop is a high interest rate environment, up until when would you carry on with this approach in terms of the bonds trade practices that we are seeing?
[Foreign Language]
[Interpreted] Once again, this is VP of long-term insurance strategy, I am [ Lee Yong-bok ], responding to the higher level of CSM adjustments that we saw during the third quarter is because of the adjustments regarding the medical indemnity guidelines by the FSS.
[Foreign Language]
[Interpreted] Now at SFMI, we use a forward-looking approach in applying this medical indemnity guideline, and that had a CSM adjustment impact amounting to KRW 143 billion.
[Foreign Language]
[Interpreted] But if you were to take this impact out, then the CSM adjustment will amount to KRW 125.5 billion, which on a Q-on-Q basis is a decline of KRW 45 billion.
[Foreign Language]
[Interpreted] So looking at a basis where you actually exclude the one-off factor of the guideline impact by the FSS, there was actually a decline in the extensive CSM adjustment. We will continuously bring improvements in terms of efficiency and also expand the resources available for use so that we could continuously narrow that CSM adjustment.
[Foreign Language]
[Interpreted] I will respond to your question about our trade in terms of the fixed income instruments. I'm VP of finance planning, [indiscernible].
[Foreign Language]
[Interpreted] So during the third quarter, as was mentioned by our CFO at the opening presentation, in Q3, because the interest rate level was more -- higher compared to what we've seen in Q1 and Q2, we had done a bond trade, which generated a loss on disposition of the fixed income instruments amounting to KRW 150 billion. The bonds that we had previously purchased when the interest rate was relatively lower, what we did was we sold off that position and we traded into a higher-yielding bond instrument. And that basically was the trade or the bond trade that we executed.
[Foreign Language]
[Interpreted] And your question relating to up until when would we engage in such type of a bond trade, it would, of course, depend on the overall market environment, which we will consider fully in making those decisions. But at the same time, as an insurance company, we would also look at the P&L of the company and also take on a very nimble approach in how we respond with this trade.
[Interpreted] The following question will be presented by Byung Gun Lee from DB Financial Investment.
[Foreign Language]
[Interpreted] I have 2. First one has to do with the overall trend in your new business CSM [ or size ] across the months of July, August, September and October. I asked this question because it seems like the third quarter sales for protection insurance was heavily impacted by what the life insurance did, their decision to actually stop the sales of the short-term premium payment product. And that had an impact on P&C insurers' sales policy is what I understand. So I would like to know as to what the new business sales trend was like for July up to September. And had there been any significant changes in the overall portfolio? And what was the trend like in the month of October?
Second question is on the guideline impact. You mentioned that you applied forward-looking approach and there was KRW 143 billion of CSM adjustment. I would think that for each of the generation of the indemnity products that there would have been a bottom line impact as well, and that impact would have been different across different generations, generation 1 through -- 1, 2, 3. So you must have the CSM -- the impact. So if possible, can the company share with us what that CSM is per each of the generation of products.
[Foreign Language]
[Interpreted] This is [ Lee Yong-bok ], VP of long-term insurance strategy, responding to the first question on the new business trend. I understand that for the life insurance company, there are short-term pay whole life products where the sales of such products were heavily concentrated from May to July. But for the nonlife insurance, it was a different types of products that we saw a high level of sales, for instance, children's insurance with the application of the age limit guideline; as well as with the changes in the coverage for the nursing and care insurances, we've seen concentrated sales across the month of July and August. So I understand that these were different patterns [ versus ] life and nonlife.
[Foreign Language]
[Interpreted] So just to sum up, from month of July up to September, we saw higher sales of health insurance disease [ coverage ] and children's coverage products, which are higher CSM-yielding products which drove up the new business CSM.
[Foreign Language]
[Interpreted] And also, in October, with the lifting of that age limit on the children's insurance, the effect actually ended in September. So after that effect has dissipated, the sales did dip. However, the overall portfolio is comprised with a very strong focus on the disease and the health and children's insurance as well as the 90 -- the age term products, which really keep our portfolio quite robust.
[Foreign Language]
[Interpreted] The second question on the application of the medical indemnity guidelines and its effect for each of the generation of product, yes, you're right. We [ approached ] the forward-looking approach, and there was a CSM impact of KRW 143 billion. In terms of the comparison for different generations, first and second generation is in the form of a [ treaty ]. It's a rider product. Whereas for the third generation, it is a stand-alone product. So it's quite difficult to provide you with an apples-to-apples comparison.
[Foreign Language]
[Interpreted] And on the bottom line impact, with the lowering of CSM by KRW 143 billion, there was an impact of CSM amortization as well as loss expense, which on a quarterly basis was about KRW 10 billion, but this is a one-off factor.
[Foreign Language]
[Interpreted] Thank you.
[Interpreted] The following question will be presented by Yong Jin Seol from SK Securities.
[Foreign Language]
[Interpreted] I think the company is doing a great job of maintaining your quality, especially if we look at the CSM multiple. But I see that the -- there's been a bit of a dip on your [ 61-month ] persistency ratio. Can you explain as to the reason why?
[Foreign Language]
[Interpreted] I am [ Lee Yong-bok ], VP of long-term insurance strategy. On the [ 61-month ] persistency ratio, these were the policies that were sold prior to 2017 when there was heightened market competition. So compared to our peers, our persistency ratio is a bit lower.
[Foreign Language]
[Interpreted] So we are continuously focusing on efficiency management of these value in-force policies. And if you were to turn your attention to the 37th month persistency ratio, it is on an improving trend on a Y-o-Y basis.
[Foreign Language]
[Interpreted] I would also provide some more elaboration on that. I am VP of Corp Management Support, [ Lee Jong-un ].
[Foreign Language]
[Interpreted] So the [ 61-month ] persistency ratio, basically, these are policies with [ elapsed ] period of above 5 years. Under the previous regulatory regime of IFRS 4, on a BEP basis, it would have been a persistency ratio within 2-year frame.
[Foreign Language]
[Interpreted] And then on -- based under the IFRS 17 starting last year up to this year, we know very clearly there is a significant difference with the past approach, and those are some of the aspects that are being reflected in our CSM multiple.
[Foreign Language]
[Interpreted] As VP [ Lee Yong-bok ] has mentioned, we have different metrics like the new business CSM and the total CSM volume. And there was a previous question about how -- whether we see that we will be able to sustain this new business CSM. What comprises new business CSM, of course, there is volume, the total volume aspect, but also a quality aspect as well, which is all about improving the efficiency. That improvement in efficiency has a bigger impact on the CSM. So from the company's perspective, we were very rigorously managed against that approach so that we may bring about improvement going forward.
[Foreign Language]
[Interpreted] Thank you. That brings us to the end of the Q&A session. If you have unanswered questions, please feel free to contact us at the IR team. Thank you very much.
[Foreign Language]
[Interpreted] This brings us to the close of the earnings presentation of SFMI for Q3 '23. Thank you.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]