Samsung Life Insurance 3Q FY2012 Earnings Results (Transcript) February 7, 2013

Transcription

1 Samsung Life Insurance 3Q FY2012 Earnings Results (Transcript) February 7, 2013 Jungsun Lee, General Manager (IR Team): Good afternoon, my name is Jungsun Lee, General Manager at the IR team. I would like to thank the investors and analysts joining us today for our 3 rd Quarter earnings conference call for fiscal year Before we begin, I would like to introduce the management team present today for the conference call. We are joined by: Mr. Namsoo Kim, Senior VP and CFO; Mr. Youngmuk Jeon, Senior VP and Head of Asset Portfolio Management; Mr. Inhwan Kim, VP and Head of Global Planning and Operations; Mr. Junkeon Lee, VP and Head of Corporate Tax & Accounting; Mr. Eunhwan Park, VP and Head of the Actuary; Mr. Kyoungsun Kim, VP and Head of Product Development; Mr. Jinsup Han, VP and Head of Risk Management; Mr. Jongmoon Park, VP & Head of Corporate Business Support; Mr. Bumchul Lim, VP and Head of Corporate Insurance Business Support, Mr. Kwangmo Choi, VP and Head of Individual Insurance Business Planning, Mr. Jemin Ryu, Head of Strategic Channel Support; Mr. Jongbum Hong, Head of Corporate Planning, and lastly Mr. Jeong-Ho Hwang, Senior VP and Head of Investor Relations. Mr. Jeong-Ho Hwang will start off today s presentation with the key highlights for the period, followed by a Q&A session. Today s presentation is scheduled for 1 hour, including your questions, which will be addressed by the members of management present today. Mr. Hwang will now begin with our 3 rd Quarter Earnings Results for fiscal year Jeong-Ho Hwang, Head of IR Team Good afternoon, my name is Jeong-Ho Hwang, Head of Investor Relations. I will begin with the financial summary for the Quarter, and then walk you through our new business results, investment performance, and key financial performance metrics, including efficiency, profitability, and capital adequacy. Finally, I will go over the structural changes taking place within the Korean financial industry, and our respective strategy to address them. First, the key financial highlights for the 3 rd Quarter. Total premium for the 3 rd Quarter reached almost KRW 7 trillion, increasing 44.1% year-on-year. New business APE rose by a solid 38.1%, with Protection sales achieving 6.1% growth, recovering from a temporary setback in the 1 st Half of fiscal year Net profit in the 3 rd Quarter went up 10.5% year-on-year, while cumulative after tax profit for the nine months was KRW 663 billion, a 42.3% growth. 1

2 As of the end of December 2012, total assets stood at KRW trillion, increasing 14.9% over the past twelve months, while invested assets rose 15.0% to reach KRW trillion. Shareholders Equity came in at KRW 20.7 trillion, an increase of 26.3%, while RBC ratio grew 38 percentage points year-on-year to 421%. Next, I'd like to share our new business results for the 3 rd Quarter in more detail. Our new business APE in the 3 rd Quarter grew by a solid 38.1% year-on-year. Annuity APE increased 33.2%, maintaining robust growth momentum ever since the proposed amendment to the Income Tax Act was announced in August last year. The proposal includes plans to reduce tax benefits for Immediate Annuities, which has caused a rapid sales growth in single premium products, including Immediate Annuities. Protection sales experienced a temporary setback in the 1 st Half. This was due to a spike in demand for Immediate Annuities by our core customers, those in the mid-to-upper-income segment. However, Protection APE resumed positive growth in the 3 rd Quarter, driven by whole life sales through our exclusive channel. Our savings products also showed sturdy growth over the last twelve months. That growth was mainly driven by customer demand for our brand, and sold mostly through our Bancassurance channel. Please note however that the crediting rates on our savings products are adjusted on a monthly basis, and that we do not sell endowment products that offer high minimum guarantees - which are the most common type of savings products sold by our peers. Next, I'd like to detail the quarterly trend in our Protection APE. Protection sales recovered strongly in the 3 rd Quarter, after a temporary decrease in the 1 st Half due to one-time factors such as the revision of the mortality table and the proposed amendment to the Income Tax Act. The upward growth trend is even more noticeable in the 4 th Quarter, and we plan to achieve a net positive growth for the fiscal year. Going forward, we will maintain a balanced growth in new business APE focusing on profitable Protection sales through our exclusive channel and Annuity & Savings through our non-exclusive channel. Additionally, we plan to develop new products that match market needs and expand the number of FCs to promote stable growth in Protection sales. Now I will go over our APE results by channel. Our exclusive channel APE grew 8.3% year-on-year while our non-exclusive channel APE increased by a robust 141.7%. Despite difficult business conditions, our exclusive channel achieved 4.8% year-on-year growth in Protection sales, focusing on profitable whole life products. Within our non-exclusive channel, our GA channel sales grew 49.7% while our Bancassurance channel sales jumped by a remarkable 347.7%, driven by strong Immediate Annuity sales following the announcement of the proposed tax amendment. Capitalizing on consumers preference for Samsung Life s brand and financial strength, our 2

3 Bancassurance channel achieved the highest sales growth among all our channels, significantly strengthening our Bancassurance market leadership. Given the long-term holding risk of Annuities and the maximum KRW 50 million cap on Korea's deposit protection system, the announcement of the proposed amendment to the Income Tax Act led wealthy bank customers who prefer low risk stable interest income to shift their funds away from banks into Samsung Life, a name they have come to associate with trustworthiness. Going forward, the lowered comprehensive income tax base for financial income and the continued progressive tax hikes for the wealthy are expected to heighten wealthy bank customers demand for taxexempt insurance products. The number of exclusive agents our main channel for Protection sales increased by 317 to 32,251 between April and December However, as a result of a year-end restructuring of underperforming agents, the number decreased by 616 on a quarter-on-quarter basis. Meanwhile, new business sales in Protection has been expanding since the 3 rd Quarter despite fewer agents, as the restructuring effort helped to enhance overall sales efficiency. Our exclusive channel is expected to resume growth in the 4 th Quarter, with an increase of newly recruited agents, and we plan to achieve a net addition of 2,000 agents each year thereafter. Additionally, our non-exclusive channel competitiveness continues to strengthen. As of December last year, the number of partnered Bancassurance branches increased by more than 1,000 to a total of 6,249 while the number of partnered non-exclusive GAs reached 329. Next, I would like to move on to our performance in the retirement market. As mentioned earlier, the proposed amendment to the Income Tax Act has led to a significant sales increase in single premium products, including Immediate Annuities. Immediate Annuities sales grew to a monthly average of KRW 583 billion in the 2 nd Quarter, followed by KRW 533 billion in the 3 rd Quarter. Deferred Single-premium Annuities also continue to grow steadily. We project Annuities to continue steady growth even after the new Income Tax Act takes effect in mid- February. We anticipate single premium products to drive the growth before the effective date. Afterward, monthly payment products that provide a ten-year tax exemption, additional payment benefits, and withdrawal options will continue to drive the growth. Meanwhile, our corporate pension reserves increased to KRW 9.6 trillion as of the end of December 2012, solidifying our position as the number one pension provider, with a market share of 14.2%. On to our performance in the HNW market. As of the end of December 2012, 106,000 customers were paying more than KRW 2 million in premiums every month. And 40,000 were paying premiums of more than KRW 100 million every month. In terms of new business, the average per-month sales of policies with monthly premiums exceeding KRW 2 million were KRW 9.3 billion in the 3 rd Quarter. This is a 56% increase compared to the 2 nd Quarter. And for single-premium policies larger than KRW 100 million, total sales averaged KRW 689 billion per month in the 3 rd Quarter. This is a 45% growth on a quarter-on-quarter basis. The fact that our large-sum monthly premium sales are growing steadily indicates that among the wealthy, there is meaningful demand not only for single premium products but also for monthly premium products. Therefore, once the amended Income Tax Act takes effect, we believe that the market demand for 3

4 large-sum monthly premium products will further accelerate. Our HNW market performance is also accentuated by the rapidly increasing sales of large-sum whole life policies. Whole life sales with a death benefit larger than KRW 1 billion generated on average KRW 1.6 billion per month in the 3 rd Quarter a 180% increase from a year ago. This is testimony to the growing demand for whole life insurance as a tool for the wealthy to ensure that their children are well funded for inheritance tax obligations. Our Whole life products are versatile financial instruments that serve many needs. In addition to being an effective funding tool for inheritance tax liability, our whole life products have flexible premium options, meaning that reserves can be freely withdrawn or additional premiums can be put in any time. And if a policyholder s financial situation changes, the cash value of the policy can be annuitized to fund retirement. As such, our whole life products are an attractive vehicle that serves multiple needs of the wealthy. Through our FP Centers and Family Office, Samsung Life will continue to increase sales of large-sum whole life policies by providing inheritance planning solutions tailored to meet the unique individual needs of our HNW clients. Next is our investment performance. Our Total Assets at the end of December 2012 was KRW 179 trillion, and our General Account Invested Assets was KRW 146 trillion. Both figures have increased 15% over the past twelve months. Our adjusted investment yield for the 3 rd Quarter was 4.7% but, on a 9-month cumulative basis, we are still maintaining it at 5% despite low interest rates. In line with our overarching ALM strategy, 80% of our invested assets are interest earning assets. At the same time, in order to increase our returns, we are more actively managing our assets and diversifying our sources for investment income. Last month, we established a wholly-owned real estate asset management subsidiary. Through this subsidiary we expect to diversify our investment risk and expand our sources of additional fee income. Now I will talk about our interest earning assets. At the end of December, our bond portfolio was KRW 83.5 trillion. Of that, KRW 68.4 trillion was Korean treasuries and agency bonds. The corporate bonds that we hold are all rated single A and above, and we continue to maintain a high quality bond portfolio. The size of our total loan book was KRW 25.1 trillion. Of that, policy loans which are virtually risk-free since they are backed by the surrender value of the policy comprised KRW 14 trillion or 56% of our total loan book. Our household credit loans amount to only KRW 0.9 trillion. And our mortgage loans which have an average LTV of 43% was KRW 5.9 trillion. Together, our total exposure to Korean household loans was only KRW 6.8 trillion, significantly lower than that of Korean commercial banks. To increase our returns in the low interest rate environment, we will continue to expand our loan book 4

5 primarily through our policy loans, and to diversify our bond portfolio. This entails increasing investments in high quality corporate bonds, agency bonds, and MBS guaranteed by KHFC (Korea Housing Finance Corporation). 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 reaching 52% at the end of December Thanks to the rapid growth in floatingrate products including Immediate Annuities, that figure is expected to fall below 50% by the end of 2013 sooner than we had originally expected. Immediate Annuities are long term products that require a holding period of at least 10 years. However, its crediting rate is reset every month and the new crediting rate applies not only to new policies but also to all existing policies. That is why the surge in our Immediate Annuity and other floating-rate single premium sales will contribute to the closing of our negative spread over the long run. The spread between our yield on interest earning assets and our average reserve interest rate temporarily widened in the 3 rd Quarter due to the sharp fall in market interest rates and the time lag of our crediting rate adjustments. Nonetheless, as market rates bottom out and the impact of our crediting rate adjustments runs through our in-force book, this spread is expected to stabilize. If we include our non-interest investment income such as rental income, dividends, and various fee income our investment yield is higher than our average reserve interest rate. Even under a low interest rate environment, Samsung Life has continued to deliver stable profits through resilient growth of Insurance Profit and by diversifying sources of investment profit. We will make all efforts to improve our profitability going forward. Now I will go over our various performance metrics including expense rate, loss rate, and persistency rates, as well as profitability and RBC. First is our key efficiency metrics. Due to lower expenses and higher premiums in the 3 rd Quarter, our expense rate fell to 13.3%. Our loss rate also came down by 3 percentage points to 84.5% due to increased risk premiums and improved claims management. Meanwhile, our 13 th month persistency remained stable, while our 25 th month persistency rate continued to improve to 70.8%. Next is our profitability and capital adequacy. 3 rd Quarter net profit rose 10.5% year-on-year, while net profit for the 9 months increased 42.3% yearon-year to KRW 663 billion. The increase was possible thanks to the resilience of our Insurance Profit. Meanwhile, our RBC ratio at the end of December was 421%, one of the highest among our peers. Our strong capital position will further strengthen our competitive edge as the Korean financial industry undergoes structural changes. Lastly, I will discuss the structural changes currently taking place in the Korean financial industry, and our strategy to address them. 5

6 First, demographically, there are 16 million baby boomers in Korea who are starting to retire. Because most of their wealth is concentrated in real estate, they need to reallocate their assets to secure liquidity for their retirement. As a result, we anticipate that the proportion of insurance within their asset portfolio will increase going forward. On the regulatory front, lowering the comprehensive income tax base for financial income has greatly increased public interest for tax-exempt life insurance products. And because Korea s deposit protection system only covers up to KRW 50 million, more and more consumers are choosing Samsung Life for its brand power and capital strength. Such developments are leading Koreans to rediscover the value of life insurance as the preferred long term financial product recognizing that life insurers contribute to the country s social infrastructure and welfare system. We plan to capitalize on the structural growth opportunities presented by the changing financial industry landscape. By expanding our performance in the growing retirement and HNW markets, we will achieve our management goal of maximizing value of new business and generating healthy profits. Needless to say, this goal is based on the premise of continued growth of our Protection products. Lastly, we will maintain our profitability by successfully navigating the current low interest rate environment. In closing, Korea s life insurance industry is entering a structural growth phase. Samsung Life will solidify its position as Korea s number one financial institution through its trusted brand name. Furthermore, Samsung Life is determined to grow into a globally recognized insurance company by successfully expanding overseas. Going forward, we will strive to gain greater affinity and trust from our customers and investors. This brings me to the end of my presentation. Thank you. 6