Samsung Life Insurance 1H FY2014 Earnings Results (Transcript) August 13, 2014

Transcription

1 JungSun Lee, (Head of IR): Samsung Life Insurance 1H FY2014 Earnings Results (Transcript) August 13, 2014 Good afternoon, my name is Jungsun Lee, Head of IR. I would like to thank the investors and analysts joining us today for our 1 st Half 2014 earnings conference call. We are joined today by Mr. Shin Hyung Choe, CFO; and other members of the management team. Mr. Shin Hyung Choe, CFO, will start off today s presentation, followed by a Q&A session. Today s presentation is scheduled for 1 hour and 30 minutes, including your questions, which will be addressed by the members of management present today. Before we begin, please be noted that today s earnings presentation is based on K-IFRS and on a consolidated basis. In addition, any forward-looking statements including the earnings outlook contained in today s conference call is subject to change depending on both domestic and overseas market conditions and operating environment. Let me now hand over the presentation to our CFO Shin Hyung Choe. CFO: Good afternoon, my name is Shin Hyung Choe, CFO at Samsung Life. I will begin with the financial summary for the 1 st Half, and then walk you through our new business results, investment performance, and key financial performance metrics, including efficiency, profitability, and capital adequacy. (p.5) First, the key financial highlights for the 1 st Half on page 5. 1

2 Please keep in mind that for an easier year-on-year comparison, 2013 and 2014 figures presented on page 5 are based on the same six months period, from January through June. Total APE for the 1 st Half decreased by 32.6% year-on-year to KRW 1.9 trillion, due to last year s high base effect caused by the Income Tax Amendment coming into effect in the 1 st Quarter of last year and the change in the fiscal year closing from March to December for FY13. Meanwhile, protection APE, which is our strategic focus, recorded KRW 1 trillion, a level just short of the sales volume for the same period last year. This was possible thanks to an exceptionally strong 2 nd Quarter protection APE, which was 13.6% greater than the protection APE generated in the 1 st Quarter. Value of New Business for the 1 st Half decreased 17.0% year-on-year due to last year s high base effect caused by the Income Tax Amendment, but we expect growth to resume in the 2 nd Half due to continued expansion of our protection sales. Total premiums decreased by 17.8% year-on-year to KRW 11.3 trillion also due to last year s high base effect. However, 1 st Half Net Profit grew +56.9% to KRW 898 billion despite one-off restructuring costs, thanks to an improved expense rate and loss rate, as well as an increase in investment income. At the end of June 2014, total assets and invested assets in the General Account grew by 8.7% and 6.9% to reach KRW 201 trillion and KRW 160 trillion, respectively. Shareholder s equity increased by 7.7% year-on-year to KRW 20.9 trillion, due to higher retained earnings and unrealized valuation gains on our AFS securities. RBC ratio at the end of June increased by 23 percentage points to 379%, which is one of the highest levels in the industry. (p.7) Now I will go over our 1 st Half new business results in more detail. Let s first have a look at our Value of New Business result for the 1st Half. 2

3 1st Half Value of New Business decreased by 17% year-on-year to KRW 538 billion, due to last year s high base effect mentioned earlier. However, our New Business margin improved by +5.3 percentage points year-on-year to 28.1%, thanks to our continued efforts to drive quality growth through profitable protection products. In the 2 nd Half, we will accelerate the growth of VoNB by maintaining our sales strategy centered on protection sales, and by optimally balancing our protection product portfolio. (p.8) Next is our new business results by each product type. As mentioned during our FY2013 earnings presentation, Samsung Life s strategic priority is to maximize corporate value by pursuing quality growth through high-margin protection sales. As a result, monthly average APE for protection in the 1 st Half increased by 12.5% versus the monthly average APE in FY2013, to reach KRW 169 billion. On a quarterly basis, despite the surge in premiums booked in December last year caused by the revision of fiscal year closing from March to December, 1 st Quarter monthly average protection APE grew 5.3% versus the monthly average APE of FY2013. Growth in the 2 nd Quarter was even higher at 19.6%, driven by strong growth in whole life sales. As a result, our protection M/S also increased by+4.2%p to 29.8% from an average of 25.6% last year. (p.9) Now I will discuss our new business APE by channel. First is our exclusive channel performance. Our exclusive channel APE declined by -9.2% compared to the monthly average APE in FY2013. However, protection APE generated by our exclusive channel grew 15.2% year-on-year, 3

4 helping to improve the profitability of our new business portfolio. Per agent protection APE, one of the key performance metrics to evaluate quality growth, increased by 21.4%, thanks to our continued efforts to enhance channel efficiency. In addition, our exclusive channel protection market share continued to expand, strengthening its market leadership. Going forward, we will continue to pursue quality growth and enhance the competitiveness of our exclusive sales channel by recruiting more new agents, increasing their retention rate, and reinforcing their productivity. (p.10) Next is our non-exclusive channel performance. Our GA channel APE decreased by 8.6%, as a result of focusing our channel strategy more on profitability, as well as a slight slowdown in cancer insurance sales after a surge in demand following its launch last year. On the other hand, our Bancassurance channel continued to deliver solid growth, with our monthly average APE reaching KRW 52 billion, having increased 19.6% compared to the monthly average of FY2013. Bancassurance customers continue to show strong preference and trust for the Samsung Life brand and financial strength, amidst the narrowing crediting rate differential between SLI and its competitors. In order to maximize VoNB, we will maintain a channel strategy focused on profitability and pursue balanced growth among each channel. (p.11) On to our performance in the corporate pension market. Our corporate pension reserves at the end of June increased 26% year-on-year to 4

5 KRW 12.3 trillion, maintaining a rapid growth rate each year. Benefiting from the narrowing gap of crediting rates between SLI and the banks, our market share has increased since the end of last year after seeing a gradual decline over the past few years. As such, we continue to maintain the number one position in the corporate pension market. The profitability of our corporate pension business has also improved as the growth of our corporate pension reserves helped to decrease our fixed cost burden. In addition, our asset management capacity, expertise and differentiated service quality will continue to provide us with a strong competitive edge under tighter regulatory limits imposed on rate-driven competition. This will allow us to expand our leadership and generate stable earnings growth within the corporate pension market going forward. (p.12) On to our performance in the HNW market. At the end of June, we had 76,000 HNW customers with estimated financial assets of KRW 1 billion or more. Among this, the number of Ultra-HNW customers those with estimated financial assets of KRW 3 billion or more was 14,000. That represents a year-on-year growth of 10% and 15%, respectively. As a result, premiums generated by these HNW customers have grown to take up an increasing share of our total premiums, with HNW contribution to total premiums reaching 20.6%. Going forward, we will strengthen the competitiveness of our Family Office that targets the HNW market, and enhance the wealth management consulting skills of our FCs through our FP Centers. We will also seek new business opportunities such as offering comprehensive asset management services that encompass non-insurance products, in pursuit of additional fee income. 5

6 (p.14) Next is our investment performance. At the end of June, our total assets reached a record KRW 201 trillion, having grown by 8.7% year-on-year. We are the first to reach the 200 trillion mark among all non-bank financial institutions in Korea. And our invested assets reached KRW 160 trillion, representing a year-on-year growth of 6.9%. In line with our overarching ALM strategy, 80% of our invested assets are interest-earning assets, namely bonds and loans. Despite falling interest rates, our 1 st Half investment yield improved by 0.4 percentage points year-on-year to 5.5%, thanks to higher dividend income and gain on sale of equity holdings. Meanwhile, the FSC approved our acquisition of Samsung Asset Management in July. Our tender for the remaining minority shares is progressing and our target is to acquire the full 100% stake by the year end. Going forward, we aim to develop our asset management business into an important driver for future growth. To do this, we will not only create synergies with SAM to improve our investment performance, but also solidify our platform for generating higher fee income through the management of third-party assets. (p.15) Now I will talk about our interest-earning assets. At the end of June, our bond portfolio was KRW 97 trillion. Of that, KRW 80 trillion was Korean treasuries and agency bonds. The corporate bonds that we hold are almost all rated single A and above, as we continue to maintain a high quality bond portfolio. Meanwhile, the size of our total loan book was KRW 27 trillion. Policy loans which are virtually risk-free since they are backed by the surrender value of the policy comprised KRW 14.1 trillion, or 53% of our total loan book 6

7 Our household credit loans amount to only KRW 1 trillion. And our mortgage loans which have an average LTV of 43% are KRW 6.7 trillion. Together, our total exposure to Korean household loans is KRW 7.7 trillion, which is significantly lower than that of other Korean financial institutions (p.16) Next is our improving reserve composition. Ever since we shifted to floating-rate products back in 2001, the share of our fixed-rate reserves has continued to fall. At the end of June, the share of our fixed-rate reserves has fallen to 47%, and we expect our reserve composition to further improve going forward, thanks to the continued increase in sales of floating-rate products. The spread between our average reserve interest rate and our yield on interest-earning assets widened to -61bps at the end of June, due to a decrease in market interest rates, and the concentration of previously invested high-yielding bonds maturing in the first half of this year. That said, even if current low interest rates were to continue, we expect this gap to stabilize at the current level, due to continued improvement in our reserve composition, the pegging of our crediting rates to our actual investment yield, and our efforts to seek out higher interest-earning assets. In addition, because our non-interest investment income such as rental income, dividends, and various fee income is steadily increasing, the impact of our negative spread to our earnings is mitigated. (p.17) On to our key efficiency metrics. Our expense rate for the 1 st Half was 7.7%. But if we exclude one-off expenses related to our restructuring program, this falls to 6.8%, thanks to our on-going company-wide cost cutting measures. 7

8 As a result of the restructuring, we expect substantial labor cost savings starting from the second half. Our 1 st Half loss ratio increased to 89.8%, due to our management s decision to increase our IBNR reserves in the 2 nd Quarter, well ahead of the April 2015 deadline, in response to a regulatory change pertaining to accidental coverage. If we were to exclude this one-time discretionary increase in IBNR reserves, our loss ratio would actually be 82.6%, having improved significantly, thanks to the decrease in claims related to thyroid cancer, among others. Meanwhile, our persistency rates continued to improve, with our 13 th month and 25 th month persistency recording 91.7% and 73.1% respectively in the 1 st Half. We will continue to improve our persistency rates by minimizing product mis-selling and by strengthening our post-sales in-force management. This in turn will help drive the steady increase in our insurance profit. (p.19) Finally, on to our profitability and capital adequacy. Our 1 st Half net profit recorded KRW 898 billion, up +56.9% year-on-year, due to improved management efficiency and an increase in investment income from the disposal of equity holdings. Going forward, we will continue to improve our profitability by driving the steady growth of our insurance profit through continued protection sales and cost discipline. Meanwhile, our RBC ratio at the end of June increased 23 percentage points sequentially to reach 379%. This was led by a higher net profit, and the increase in our fixed income valuation gains, among others. Going forward, we expect the progressive strengthening of regulatory capital to have limited impact on our capital strength. Rather, our resilient profit structure and financial strength presents us with an opportunity to attain a stronger competitive edge against our competitors. 8

9 (p.20) That brings me to the end of our 1 st Half results. 2 nd Half of this year. Now I will discuss our strategy for the First, under our pillar for quality growth, we will focus even further on growing our Value of New Business by improving our product portfolio. We will differentiate the type of protection product to be sold according to the FC s individual skills and product complexity. We will improve the margin of our whole life insurance through product revision, and roll out Critical Illness and mid-to-low priced health insurance tailored to the needs of our customers. All these actions will contribute to maximizing our Value of New Business. Second, we will expand our recruiting campaign for new FCs and innovate our training program in order to improve the productivity of our exclusive sales force. Third, we will strengthen our drive to grow our customer base. In order to attract new customers, our marketing campaigns will target the 20s and 30s and we will strengthen our virtual marketing efforts such as direct marketing. As for our existing customers, we will closely manage them by strengthening our call center s ability to respond to requests for policy termination, and expand our on-going campaign to revive lapsed policies. Lastly, we will develop strategies to innovate all stages of the value chain for each of our business functions including product development, sales, underwriting, claims management, asset management, and overseas business. Through such efforts, we will do our best to achieve sustainable and resilient earnings in the face of a fast changing industry landscape. Thank you very much for your attention. 9