Q1 2013 Samsung Life Insurance Co Ltd Earnings Conference Call
Aug 09, 2013 AM KST
032830.KS - Samsung Life Insurance Co Ltd
Q1 2013 Samsung Life Insurance Co Ltd Earnings Conference Call
Aug 09, 2013 / 07:00AM GMT
==============================
Corporate Participants
==============================
* Jungsun Lee
Samsung Life Insurance Co Ltd - General Manager, IR Team
* Youngmuk Jeon
Samsung Life Insurance Co Ltd - Senior VP, Head of Asset Management
* Kyoungsun Kim
Samsung Life Insurance Co Ltd - VP, Head of Product Planning
* Kwangmo Choi
Samsung Life Insurance Co Ltd - VP, Head of CPC Planning
* Bumchul Lim
Samsung Life Insurance Co Ltd - VP, Head of Corporate Insurance Business
* Namsoo Kim
Samsung Life Insurance Co Ltd - CFO
==============================
Conference Call Participants
==============================
* Byung-gun Lee
Dongbu Securities - Analyst
* Sarah Lee
Morgan Stanley - Analyst
==============================
Presentation
------------------------------
Unidentified Company Representative [1]
------------------------------
(Interpreted) My name is [Jeong-Ho Hwang], Senior Manager at Samsung Life IR. I would like to thank investors and analysts joining us today for our First Quarter of Fiscal Year 2013 Earnings Conference Call.
Before we begin I would like to introduce the management team present here today. We are joined by Mr. Namsoo Kim, Senior VP and CFO, Youngmuk Jeon, Senior VP and Head of Asset Portfolio Management, Eunhwan Park, VP and Head of Actuary Team, Kyoungsun Kim, VP and Head of Product Planning, Bumchul Lim, VP Head of Corporate Insurance Business Support, Jinsup Han, VP and Head of Risk Management, Kwangmo Choi, VP and Head of CPC Planning, Jemin Ryu, Head of Strategic Channel Support, [Chong Buk Li], Head of Corporate Tax and Accounting, [Chong Buk Tan] from Corporate Business Support, [Chong Sun Li] from Overseas Business Support, [Chin No Yang] from Corporate Planning Team, [Xi Si Ung] from Wealth Management and lastly, Mr. Jungsun Lee, Head of Investor Relations.
Mr. Jungsun Lee will start off today's presentation with the key highlights for the quarter, followed by Q&A session. Today's presentation is scheduled for one hour, including our questions which will be addressed by the members of the management present here today. Mr. Jungsun Lee will now begin the presentation.
------------------------------
Jungsun Lee, Samsung Life Insurance Co Ltd - General Manager, IR Team [2]
------------------------------
(Interpreted) Good afternoon, my name is Jungsun Lee, head of the IR team. 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.
First, the key financial highlights for the first quarter. Our first quarter new business APE recorded a year-on-year decline of negative 4.1% due to last year's high base effect for annuity, caused by the revision of the mortality table. APE for our profitable protection product on the other hand continued to report resilient growth of 4.6% year-on-year.
Total premiums grew by a stable 5.2% year-on-year to KRW5.4 trillion, with net profit growing 2.3% to KRW248 billion.
At the end of June 2013 total assets and invested assets both grew by more than 13% to reach KRW185 trillion and KRW150 trillion respectively.
Shareholders' equity increased by 10.1% due to a steady growth in retained earnings. Our RBC ratio, which is a measure of our capital adequacy, decreased by 55 percentage points year-on-year to 335%, having been impacted by changes in the RBC regulation, such as the introduction of negative spread risk.
I will now go over our first quarter new business results in more detail. First is our new business APE. Protection APE continued a stable growth of 4.6%, not only through wholesale, our whole life and [CI] sales but also through sales of cancer protection products which we launched in April.
Meanwhile, our annuity and savings APE recorded a 10% decline year-on-year due to a decrease in annuity sales. The year-on-year decrease in annuity sales stems from last year's high base, caused by certain sales in anticipation of the new mortality table adoption in July 2012 in a temporary curve and annuity demand this quarter after very strong sales earlier this year, just prior to the income tax amendment coming into effect.
Onto our APE by channel. Due to a temporary slowdown in annuity demand total APE for exclusive and GA channels recorded a decline of 11.3% and 6% respectively. But our exclusive channel maintained positive growth for our protection products. Likewise, our GA channel also recorded a robust a robust 29% growth in protection APE by generating strong sales of our newly launched cancer product.
Lastly, our bancassurance channel continued to deliver steady growth in annuities and strong growth in savings, resulting in a year-on-year growth of 82.5%.
Now I will discuss our exclusive channel performance. The number of our exclusive agents decreased slightly to 31,476 agents. However, the number of active agents, defined as those that sell one or more policies per month, actually increased by 1300 year-on-year. This accentuates the ongoing quality growth of our exclusive channel.
In addition, we continue to strategically grow the number of our univ agents that target the 20s and 30s, the number of GFC agents that target corporate clients and executives of midsize companies.
Meanwhile, per agent APE is continuously increasing for our core protection products and we can anticipate further improvements in agent productivity once the results of our efforts to increase the number of active agents take full effect.
Going forward we will recruit new agents on the premise of increasing productivity and efficiency of our exclusive channel. At the same time we will focus on growing the number of active agents, thereby expanding our exclusive channel on the back of qualitative competitiveness.
Next is our non-exclusive channel leadership. Our GA channel coverage is continuing to expand with the number of partnered non-exclusive GAs reaching 355 agencies. And the number of our active GA agents increased 60% in the first quarter, underscoring our (inaudible) performance in this channel. This performance is particularly noteworthy because the rest of the industry experienced a setback in GA channel sales in the first quarter, due to a tighter regulatory limit imposed on deferrable acquisition costs starting in April 2013.
As for bancassurance the number of partner branches reached 6517, growing by more than 640 branches year-on-year.
Bancassurance customers continue to show strong preference and trust for the Samsung Life brand and capital strength. And this resulted in a robust growth for both monthly and single premium products, helping to further strengthen our market presence in this channel. Going forward these three factors are expected to continuously drive the expansion of Samsung Life products [through good] channel leadership.
First are regulatory changes, such as the strengthening of RBC regulation and the aforementioned limit of first year deferrable acquisition expense. Second in the continued affinity for our brand and third is our continued effort to develop new products that meet consumers' needs.
Onto our performance in the retirement market. As discussed in the previous section, annuity sales across the industry was relatively weak during the first quarter after an exceptionally strong period this year in the lead up to the scheduled income tax amendment. However, if we exclude the one-off spike in immediate annuity growth last year single premium annuities which are preferred by retirement baby boomers is on a steady growth trajectory. This is testimony to the fact that baby boomers who are ill prepared for retirement can [find] the tax exempt features of annuity products offered by life insurers attractive and select Samsung Life for our brand and financial strength.
Meanwhile, our corporate pension reserves at the end of June recorded KRW9.8 trillion, a year-on-year growth of 27%. And we continue to maintain the number one position in corporate pension market with a market share of 13.9%. Going forward we will continue to expand our corporate pension market leadership based on our dominance in the [EGB] market and by increasing our competitiveness in the [IRP] market by capitalizing on our strong FC sales force.
Onto our performance in the high net worth market. At the end of June we had more than 68,600 high net worth customers with estimated financial assets of KRW1 billion or more. Among this the number of ultra-high net worth customers, those with estimated financial assets of KRW3 billion or more was more than 12,000. That represents a year-on-year growth of 26% and 58% respectively. As a result, premiums generated by high net worth customers have grown to take up an increasing share of our total premiums.
High net worth contribution to total premiums grew from 15.4% a year ago to 19.4% in the first quarter.
In July Samsung Life launched a new exclusive cohort of financial consultants, named the Wealth Management Board, that targets the high net worth targets. The WM Board consists of 310 top performing FCs and these members receive support from our existing high net worth service platform, such as the Samsung family office and our FP centers. We expect the WM Board to play a pivotal role in our high net worth market expansion going forward.
Now I'll discuss our investment performance. Our total assets at the end of June 2013 was KRW185 trillion and our invested assets was KRW150 trillion. Both figures climbed by 13% over the year.
In line with our overarching ALM strategy 80% of our invested assets are interest earning assets, namely bonds and loans.
Despite interest rates reaching an all-time low in early May we were able to maintain our annual adjusted investment yield at 5% thanks to our efforts to allocate more funds into higher yielding assets, such as agency bonds and loans.
Going forward we will strengthen our base for stable interest income generation by increasing our new money yield. At the same time we will increase investments in alternative assets and gradually grow our overseas investments in pursuit of higher yields. Such measures will help us to achieve both stability and profitability in our investment portfolio.
Now I will talk about our interest earning assets. At the end of June our bond portfolio was KRW88.7 trillion. Of that, KRW72.4 trillion was Korean treasuries and agency bonds. So corporate bonds that we hold are almost all rated single A or above as we continue to maintain our high quality bond portfolio.
Meanwhile the size of our total loans book was KRW26 trillion. Policy loans, which are virtually risk free since they are backed by the surrender value of the policy comprised of KRW13.9 trillion or 54% of our total loan book.
Our household credit loans amount to only KRW1 trillion and our mortgage loans with an average LTV of 43% was KRW6.5 trillion. Together our total exposure to Korean household loans is KRW7.5 trillion, which is significantly lower than that of other Korean financial institutions.
Next is our improving reserve composition. Ever since we shifted to floating rate products back in 2001 the share of our fixed rate reserves have continued to fall. Thanks to the surge in sales of floating rate single premium policies, including immediate annuities from last year our share of fixed rate reserves fell significantly in recent months, it is now 49.8% at the end of June.
The spread between our yield on interest earning assets and our average reserve interest rate widened during the last year due to the sharp fall in market interest rates and the time lag of our crediting rates adjustments. None the less as the share of fixed rate reserves continue to fall and as the impact of our crediting rate adjustments flow to our in force book the spread began to stabilize since early this year. Going forward we expect this gap to gradually narrow should interest rates rise.
That said, or non-interest investment income such as rental income, dividends and various fee income is steadily increasing. Including these our investment yield over reserves continues to exceed our average reserve interest rate.
Onto our key efficiency metrics, starting on page 18. Due to lower maintenance costs and higher premiums our expense rate fell to 7.1% in the first quarter. Our first quarter loss rate increased slightly due to one off surge in large sum death benefit payments payout during the quarter. However, our loss rate remains largely stable over the year thanks to steady risk premium flowing in from growing protection sales as well as improved claims management.
Our 13th month persistency rate rose to 87.9% at the end of first quarter while our 25th month persistency improved significantly to 73.7%.
Minimizing product mis-selling through better disclosure at the point of sale strengthened post sales relation management will contribute to continued improvement in our persistency rate. This in turn will help drive a steady increase in our insurance profit.
Finally onto our profitability and capital adequacy. Our net profit for the first quarter recorded KRW248 billion, up 2.3% year-on-year, thanks to our resilient insurance profit despite low interest rates.
Meanwhile, our RBC ratio at the end of June came in at 335% due to valuation loss on [asset for sale] securities, caused by the rebound in the market interest rates in the first quarter. Nevertheless, we continue to maintain one of the highest capital levels in the industry.
Our resilient profit structure and financial strength will continue to provide us with a competitive edge to face a progressive strengthening of regulatory capital and as Korea's insurance industry undergoes structural changes.
The first quarter we did our best to secure stable profit and resilient protection APE growth in spite of lower interest rate environment and increased financial market volatility.
Despite the challenging environment we'll continue to achieve quality growth and build on our unrivalled competitive edge by strengthening our market presence and leveraging our brand and financial strength.
To this end we will further drive our protection sales by developing new products that meet customer needs and enhancing productivity of our exclusive channel by steadily increasing the number of active agents. In addition, we will continuously expand our coverage of the non-exclusive channel.
Furthermore, in order to generate stable profits, even under low interest rates, we will strengthen our performance measurements and profit management systems centered on long term corporate value indicators such as imbedded value. At the same time we will remain committed to efficiently managing our [cap bill] in order to maximize shareholder value.
This concludes our Earnings Results Presentation for First Quarter Fiscal Year 2913. Thank you.
------------------------------
Unidentified Company Representative [3]
------------------------------
(Interpreted) Yes, we will now conclude the presentation and move on to Q&A session with our analysts and investors.
------------------------------
Operator [4]
------------------------------
(Interpreted) Now Q&A session will begin.
(Operator Instructions).
------------------------------
Operator [5]
------------------------------
The first question will be provided by Byung-Gun Lee from Dongbu Securities. Please go ahead Sir.
==============================
Questions and Answers
------------------------------
Byung-gun Lee, Dongbu Securities - Analyst [1]
------------------------------
(Interpreted) Yes, this is Byung-gun Lee from Dongbu Securities. I would like to ask two questions. First, thank you for providing the good results despite the challenging situation.
First, my question has to do with interest rates. Although you did provide some details about your view on interest rates before I would still like to ask about what kind of new money yields you have been seeing in the recent months as we have seen an uptick in the market interest rate? So could you go by January, February, March, April, May, June and up to even this month of July, what kind of new money yields have you been seeing on a month-by-month basis, what kind of improvements, and if so, how would that reflect on the spread on your reserves?
The second question has to do with your new products. I believe some time in your presentation you said that you intend to introduce new products that are in line with customer needs. I think the market is most interested in particular in two types of products, one would be the cancer policies and the second would be the long term care, or the LTV types of policies.
I know that Samsung Life used to be quite conservative about cancer policies but you've turned around and recently launched the new cancer products. What is the view on LTV? Is it -- I understand that you're still conservative on this type of product. What kind of identified risk can you provide for each of those two sets of products? Why is it that you decided to change your mind to reintroduce the cancer policy? And if so, does that suggest that you could possibly change your view about the LTV policy? So again, your view on the different product risk and also the response to those specific risks?
------------------------------
Youngmuk Jeon, Samsung Life Insurance Co Ltd - Senior VP, Head of Asset Management [2]
------------------------------
(Interpreted) Yes, this is Youngmuk Jeon, I'm the Senior VP and Head of Asset Portfolio Management. Let me answer your first question about the new money yield.
First, I believe you asked for a breakdown month-by-month. We don't have the data available right now but if you do need it we can provide it to you through our IR team.
We do have data on a quarterly basis. If you look at the first three months of 2013, for example going -- if you look at the policy loans, just going not by the (inaudible) basis which is too big, if you just go by the net new money yield on the policy loans it was about 3.5%. And then on a net basis the new money yield for the month between April and June was 3.7%, so 20 basis points higher. And most recently in the month of July the net new money yield was 4.2%, which represents another increase of 50 basis points.
And you also asked about how this will impact the spread that we have on our reserves. We have not yet run simulations in that regard, but since the going market interest rates are not yet at very high levels, assuming that current rates are maintained we think that the negative spread will remain.
However, as you have mentioned, the market interest rates are increasing slightly and in terms of managing our investment portfolio, rather than focusing only on bonds we are looking to seek higher returns, say allocating more funds into loan assets or other alternative bonds investments as well. So gradually we think that our negative spread will improve.
------------------------------
Kyoungsun Kim, Samsung Life Insurance Co Ltd - VP, Head of Product Planning [3]
------------------------------
(Interpreted) This is Kyoungsun Kim, I am the head of the product development team. Let me answer your second question about our views on the LTV type of product. As you know, in April this year we did launch our cancer product. In terms of risk, I think we can categorize them into two types. One are the predictable types of risks versus another category of unpredictable or hard to predict risks. For the first time of predictable risks, because we do have available historical statistics on cancer prevalence and we can assess the risk rate trends, we found that with going by a 15-year renewable type of scheme, we thought that we could control the risk. We found that the risk would be quite manageable.
But for the second type of hard to predict risks, we have chosen to hedge against that risk by ceding 80% of the policies to reinsure. LTV types of policies are different from cancer products in the sense that the elderly become entitled to LTV benefits if they experience disability that prevents them from taking care of their own selves, and we found that in terms of the risk rate trends, it starts to surge after the age of 80.
So it's hard to assess the risk just through experience statistics, just for LTV type of products. We are relying on national population data to identify the inherent risks. We do see some differences depending on the disability grade. For grades one and two, the risk rate trends are stable, whereas for grade three we think that we're seeing unstable growth trends.
For LTV products there is the matter of the reliability of appraisal tools to determine the disability. Objectivity and fairness have to be considered. So we are taking a comprehensive look at these types of products, again looking at the reliability and also the stability or otherwise of the risk rate trends. Thank you. We will move on to the next question.
------------------------------
Operator [4]
------------------------------
The following question will be presented by [Kim Sung Zhou] from City Global Market Securities. Please go ahead, sir.
------------------------------
Unidentified Participant [5]
------------------------------
(Interpreted) This is Sung Zhou Kim from City Securities. I also have two questions. First, if you look at the breakdown of protection type APE, it seems that with the launch of the new cancer products your healthcare protection APE has increased 57% year on year, whereas your death benefit or whole life products, the APE has gone down by negative 10.4%. It seems that in terms of healthcare, it was the initiative for Samsung Life that you chose to launch your new cancer products and so that is the result that you have delivered on your own.
If you look at the negative 10.4% APE negative growth on the death benefit side, is it due to the market circumstances or the business cycle? Is that why it's dampening, the natural close of the death benefit APE, or is it in part due to cannibalization by your new cancer products that is eating into your whole life APE?
The second question has to do with the RBC level. It is quite high compared to your peers and you have said that you intend to make active use of the RBC. Well, can you provide some ideas in terms of a possible increase in your payout ratio versus the other companies being in a situation where they have to lower their payout? Could you possibly increase your payout, although it is early to say, or will you -- as you said, you'll be constrained by regulatory issues as you have been in the past and you will not be able to increase the dividends, the payouts, regardless of your high RBC ratio?
------------------------------
Kwangmo Choi, Samsung Life Insurance Co Ltd - VP, Head of CPC Planning [6]
------------------------------
(Interpreted) This is Kwangmo Choi, I am the VP and head of CPC planning, so let me address that question. Actually, with the launch of the cancer product earlier in April, initially there was a slight replacement effect from the launch of the new products. However, (inaudible) overall slowdown in the product market in the first quarter, we drove up sales of our protection business and so protection APE for the first quarter was quite robust at 4.6% year-on-year.
In terms of our sales, we have continued sales of our cancer products. We're also seeing robust sales of our whole life and (inaudible) products and as of July the sales of these policies recorded KRW9.3 billion, which means a recovery back to April levels. So we think -- we foresee steady growth in terms of protection APE. In particular, specific to the whole life space, we intend to make continued efforts to enhance the competitiveness of our whole life product. We will provide differentiated services, including seminars available to the customers, inheritance planning and other types of customized services for customers to tap into the vastly growing high net worth market and so through this differentiation we intend to continue to grow that space.
------------------------------
Kyoungsun Kim, Samsung Life Insurance Co Ltd - VP, Head of Product Planning [7]
------------------------------
(Interpreted) This is Kyoungsun Kim, the CFO. Let me add some more answers regarding payouts. Although at this point I cannot provide a definitive answer as we have not reviewed or made any conclusions regarding the capital deployment policies, including dividends or share buybacks, I will say consistent to what you have seen in the past three years we will remain focused on our shareholders in terms of our capital management policies going forward.
------------------------------
Operator [8]
------------------------------
The following question will be presented by [Kim Yung Woo] from JP Morgan. Please go ahead, sir.
------------------------------
Unidentified Participant [9]
------------------------------
(Interpreted) This is Yung Woo Kim from JP Morgan. I have two questions. First my question has to do with the high net worth market. If you look back at the past one year or so, you have significantly grown sales from your high net worth business in terms of the percentage against total sales. I believe it is now up to 20% of total sales. Looking back, you do see there were significant boosting from the tax revisions and also over enhanced awareness amongst the Korean public about retirement.
So I think these were big factors and they were crucial in terms of boosting your last year's sales, but going forward I am concerned whether there will be significant scope remaining for further future growth. So in that regard I have questions. Annuities have been slightly down, a bit soft, recently, but just over in terms of products, what types of new products, new mainstay products, are you thinking of in terms of pushing or marketing to the high net worth market? If you have a target in terms of high net worth sales, what is that target? What are your plans?
That was my first question. Moving on to the second question regarding corporate pensions. In terms of reserves, you're almost at the KRW10 trillion, which would lead me to say that you have achieved a significant, sizeable mass. Going forward, depending on how much spread margin you deliver on top of those reserves, it could significantly make a contribution into your bottom line and earnings. So what is the spread margin right now on your corporate pension business, and looking to the next two to three years, what is your future outlook for the spread margin?
------------------------------
Unidentified Company Representative [10]
------------------------------
(Interpreted) This is [Xi Si Ung], I am from the wealth management department. Let me answer that question about the high net worth market. Regarding the high net worth market sales as a proportion of our total (inaudible) business, before we had the new -- the tax law revision in April, before the proportion was 15%, but at the height of this tax revision issue it went up, at one point, as high as 40%. It has since slipped off those high levels, but as of the months of April and May it has since gone back up to 20%, so it is now on an uptrend.
In terms of our product strategy going forward, because the high net worth individuals have no other alternative other than insurance policies if they are looking to qualify for tax exemption benefits, we think the needs from the high net worth individuals will continue to grow, so we intend to focus on fixed sum annuity insurance products and also inheritance planning linked with big ticket whole life products as well.
------------------------------
Kyoungsun Kim, Samsung Life Insurance Co Ltd - VP, Head of Product Planning [11]
------------------------------
(Interpreted) This is Kyoungsun Kim, the CFO. Let me add to that. Obviously the high net worth market is something that is now the focus of all types of financial institutions who are now engaged in intense competition over that market. For Samsung Life we have three differentiated strategies in terms of tapping into this market. First in terms of high net worth market services, we want to take advantage of our unique strength as an insurance company that is specialized in the management of long term assets, so in that theme we'll provide long term inheritance planning, family business or estate planning as well.
Second, unlike other financial companies we want to take advantage of our very strong SP distribution channels so that they can go out and reach out to the high net worth customers. So as was previously mentioned, we have established what is called the wealth management board. It is constructed of 300 of the topmost high performing SPs that we have with established high net worth account bases, and so with direct rapport from our existing family office and SP center, we wish to generate the most energy possible.
Also we want to create a special sales taskforce team specific to different geographies. These would be teams formed of high performing SPs that have the capabilities to target the high net worth customers in that geography and area, and so with (inaudible) want to aggressively market high or big sum whole life products and big sum annuity products as well.
------------------------------
Bumchul Lim, Samsung Life Insurance Co Ltd - VP, Head of Corporate Insurance Business [12]
------------------------------
(Interpreted) Let me answer your second question. My name is Bumchul Lim. I'm the head of corporate insurance business.
The second question about the corporate pension business, as of June end our total reserve stands at almost KRW10 trillion, it's KRW9.8 trillion and you asked about the scope for future growth. We think because the size of the broader corporate pension market in Korea continues to be growing, we think that we can expect 10% or above growth going forward. So by the end of this year we anticipate our corporate pension reserve may be close to KRW12 trillion.
In terms of the spread margin on our corporate pension business, if you can divide the spread into two parts first with the interest spread margin and the second is expense spread margin, actually as our reserves passed the KRW7 trillion mark we started generating plus expense or loading margin. So the bigger our reserves become (inaudible) the bigger our expense or loading margin.
In terms of our interest margin, because there was intense competition amongst the corporate pension providers there was stiff pricing competition with high offered rates by the providers. However, since then with the stabilization of the financial market the offered rates are stabilized and are around 3.1%.
So when you compare our rates that we have to pay out to the customers versus our investment yields, our investment yields are higher which is why we anticipate continuous surplus or profit from our interest margin space also.
------------------------------
Operator [13]
------------------------------
(Interpreted) The following question will be presented by Sarah Lee from Morgan Stanley. Please go ahead, sir.
------------------------------
Sarah Lee, Morgan Stanley - Analyst [14]
------------------------------
(Interpreted) This is Sarah Lee from Morgan Stanley. I have some questions. If you look at the protection APE for the first quarter fiscal year '13, it's 4.6% largely driven by the launch of your new cancer products you say that compared to the other life insurers it is a pretty fair level. But when you compare that figure to the non-life insurance companies' protection APE it does seem, in comparison, to be low. So is it because you have not been able to find key growth drivers in terms of your products relative to the non-life players? And what are the issues that have resulted in the lower protection APE growth of 4.6%? Is it the business cycle, is it specific to the product or is it seasonality?
I know that you had the variable annuity issue in the first quarter of last year, but when you consider the low base that you've come from, actually the 4.6% is quite lower than my expectation still. So I'd like to share more about why.
The second question has to do with the second half, if you have any plans in place to develop new types of products or perhaps to revise your distribution channel and what is your plan or target in terms of how much protection APE growth you'll be trying to achieve?
The second question has to do with loss rates. When you compare the loss rates this year relative to last year and also relative to the competition it does seem slightly high. Is it a one-off that is specific just to this quarter or do you think that this trend is likely to continue? Is there any plan you have to do more efficient management of your loss rate so that it can contribute to your mortality or morbidity margin?
------------------------------
Kwangmo Choi, Samsung Life Insurance Co Ltd - VP, Head of CPC Planning [15]
------------------------------
(Interpreted) This is Kwangmo Choi. I am the head of the CPC planning office. Let me answer that.
Let me first answer the question about the APE growth that we saw for protection policies. If you look at the months between January and March early this year there was the tax revision issue regarding tax exemption products and so we saw a surge, an extraordinary surge in demand for whole life type products.
So as a consequence, because all the prospective customers were then exhausted, in this quarter all around across the broad industry there was a decline in performance figures. However, Samsung Life actually was quite preemptive in launching new cancer products for the mass market which went largely unaffected from the pending tax revision. So because of the timely launch despite the overall slowdown in the broader market we were able to achieve solid 4.6% year-on-year growth for protection APE.
Let me also add our outlook in terms of protection APE growth going forward in the second and third quarter.
For the second quarter in terms of protection APE, we think the growth will be 8% y-o-y or above. This will be in line with our annual guidance.
And there's the low growth and low interest rate environment. The local insurance industry is now focusing on profitability as the major criteria and so that we think that the protection market will continue to grow.
On the current market situation we will make various efforts to enhance our sales of protection types of products through the following three measures. First of all, we will continue to strengthen and reinforce our sales force by increasing the number of active agents. Second, we will strengthen the competitive advantage of our main whole life (inaudible) products while also introducing more low end to mid-price new products as well. These will all contribute to broadening our market coverage and in this we will do our best to meet the full year guidance.
------------------------------
Kyoungsun Kim, Samsung Life Insurance Co Ltd - VP, Head of Product Planning [16]
------------------------------
(Interpreted) This is Kyoungsun Kim. I'm from the product development team. Let me add more about the difference between the life insurance companies versus the non-life insurance companies in terms of the protection product competitiveness.
As you know, in terms of protection policies offered by non-life insurers there is long term injury type of coverage and also general coverage. So in terms of their protection portfolio, 30% is composed of property or auto related insurance which is the unique or specific business area for non-life insurance companies. The remaining 70% are long term injury type of products.
If you look at the accident or disease types of products, and these mostly have low to mid- level premium prices, they offer coverage for diseases, accidents, long term care, cancer coverage or children coverage.
So unlike the non-life insurance companies, Samsung Life obviously can provide whole life products and also CI products.
In terms of what types of products we'll be focused on this year, it is the type of products where there is an overlap between ourselves and non-life insurance companies that as soon as we finish developing more full diversified product line-up, we think in terms of the product quality the life insurance companies will be at an advantage relative to the non-lifers.
------------------------------
Namsoo Kim, Samsung Life Insurance Co Ltd - CFO [17]
------------------------------
(Interpreted) This is Namsoo Kim, the CFO. It is true that compared to last year the loss rate did deteriorate slightly. It was due to three reasons.
The first reason was that we did see an initial surge in large sum death payouts in the first quarter fiscal year '13. That was one reason.
The second reason is that cases that were being disputed at the disputes settlement body regarding living benefit type of products were actually resolved, actually the conclusions were issued by the disputes settlement body this year which resulted in a one-off claim payment.
The third reason was that there was also a temporary increase in payouts regarding the (inaudible) or indemnity cover type of products.
Our cautious analysis at this point was that it may be due to the unusually cold weather that we saw earlier this year with the effect of people making their claims after the month of April.
In terms of managing our loss rates more efficiently, of course it's obvious we'll continue to work to aggressively increase our protection type sales and also we are enforcing investigations into possible fraud, we are looking into (inaudible) hospitals to prevent undue claim applications. So with that we will try to manage our loss rates at least on an equal level to last year.
------------------------------
Operator [18]
------------------------------
(Interpreted) The following question will be presented by (inaudible) from Korea Investment & Securities. Please go ahead, sir.
------------------------------
Unidentified Participant [19]
------------------------------
(Interpreted) This is (inaudible) from Korea Investment & Securities. I also have a couple of questions for you.
Yesterday there was an announcement of a possible tax revision proposal. I don't think there was special mention about the insurance industry per se but has anything that has now been discussed within the authorities come to your attention? If so, could you share that information with us?
Second, regarding your investment strategy, I'm curious in your bond holdings what are your typical durations, what are the yields on your bond holdings and what is the new money yield for a bond acquired just in the third quarter? Depending on your interest rate outlook, how will that factor into your bond investment strategy?
------------------------------
Unidentified Company Representative [20]
------------------------------
(Interpreted) This is [Junkeon Lee]. I'm from the Corporate Tax & Accounting office. Let me talk about the proposed tax revisions.
To give you the conclusion first, according to the proposed tax revision that was announced last year, and it was proposed to be applied for 2013, there is no mention about tax exemption benefits for insurance type of income. However, we do understand that that information will be included in the enforcement decree section which will be finalized by the end of this year, so we will keep a close eye and monitor those developments.
------------------------------
Namsoo Kim, Samsung Life Insurance Co Ltd - CFO [21]
------------------------------
(Interpreted) This is Namsoo Kim, the CFO. Let me just add a bit to that. In terms of the tax revision proposal as far as insurance is concerned, we do understand that there is a proposal to change the income deductible scheme to a tax credit scheme.
So currently, as you know, you can deducted up to KRW1 million from your taxable income for any protection policies that you own, the tax deductible ceiling is KRW4 million for any tax qualified type annuities that you hold. Now the government is proposing to change the income deductible system to a tax credit scheme.
So it will depend on your tax bracket, what your effective tax rate is. That will determine whether you will benefit from the tax revisions or not. If your tax rate is below 12% then you may stand to benefit. If your effective tax rate is 12% or above it may mean that the deductible that you can apply on your taxable income may decrease slightly. But for a tax bracket above 12% you're talking about annual income of KRW70 million to KRW80 million so we think the impact from that decline in deductible will be marginal.
------------------------------
Youngmuk Jeon, Samsung Life Insurance Co Ltd - Senior VP, Head of Asset Management [22]
------------------------------
(Interpreted) This is Youngmuk Jeon. I'm the head of the asset portfolio management team. Let me answer your question about the (inaudible) side.
You asked for a current status update about our current bond holding. The duration right now is five years. In terms of our yield on the current bond holdings, it's about around 4.5%.
And you asked about the new money yield. Well as you know they were slightly low as they came from the low rate environment. Looking at the entire first quarter the new money yield on our bonds was 3.2% but amid the recent uptrend in the market interest rate, as of July the new money yield on our bonds has gone up slightly to 3.6%. So overall the new money yield has been increasing.
In terms of our future strategy for investing in bonds and you asked about our interest rate outlook, we foresee that there will be a slight increase in the interest rate but it will not be a significant increase.
In terms of how we as an insurance company manage our bond investment, we do not go by our expectations or estimations about future interest rate movements. We are based principally on the (inaudible) matching strategy to be both in line with our liability structure.
So going forward, as we have up till now will continue to invest in long term bond offerings, continue our investments into bond and because the available bonds are limited as the size of the market is limited in Korea, we will continue to review possibilities outside of the local market.
------------------------------
Unidentified Company Representative [23]
------------------------------
I think we have already gone over a lot of time. If anybody has additional questions please forward them to the IR team. Thank you.
With that we will conclude the first quarter fiscal year 2013 earnings conference call for Samsung Life. Thank you for joining us.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------