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Edited Transcript of 000810.KS earnings conference call or presentation 14-May-20 7:00am GMT

Q1 2020 Samsung Fire & Marine Insurance Co Ltd Earnings Call

Seoul Jun 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Samsung Fire & Marine Insurance Co Ltd earnings conference call or presentation Thursday, May 14, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chang Joon

Samsung Fire & Marine Insurance Co., Ltd. - Head of IR

* Che Bu Gyu

Samsung Fire & Marine Insurance Co., Ltd. - Executive Officer

* Il-Pyeong Kim

Samsung Fire & Marine Insurance Co., Ltd. - Executive Director & Head of car insurance Strategy Team

* Tae-Yeong Bae

Samsung Fire & Marine Insurance Co., Ltd. - CFO, Senior VP & Director

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Conference Call Participants

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* Byung Gun Lee

DB Financial Investment Co., Ltd., Research Division - Team Leader

* Jin-Sang Kim

HMC Investment Securities Co., Ltd., Research Division - Analyst

* Myung Wook Kim

JP Morgan Chase & Co, Research Division - VP

* Yafei Tian

Citigroup Inc, Research Division - Assistant VP and Analyst

* Yong Hoon Sung

Hanwha Investment & Securities Co., Ltd., Research Division - Analyst

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Presentation

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Chang Joon, Samsung Fire & Marine Insurance Co., Ltd. - Head of IR [1]

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[Interpreted] Good afternoon. I am Joon Chang Ho from the IR part of Samsung Fire & Marine. We'd like to begin the conference call for the first quarter of the fiscal year 2020. Today, CFO, Bae Tae-Yeong, will give a presentation, which will be followed by a Q&A session with the participating Executives.

Now I will hand over to CFO, Bae.

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Tae-Yeong Bae, Samsung Fire & Marine Insurance Co., Ltd. - CFO, Senior VP & Director [2]

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[Interpreted] Good afternoon. I am Tae-Yeong Bae, CFO of Samsung Fire & Marine.

First, on Page 1, the direct premiums written was up 5.9% year-on-year. The net income was down 28.9% year-on-year to post KRW 164 billion, but it is in line with the market consensus if we exclude the large claims events from the general insurance. The RBC ratio was down 53 percentage points year-on-year to mark 297%.

On Page 2, as for the long-term line, health insurance new business grew 10.1% year-on-year, and the risk premiums earned grew 7.2%. The risk loss ratio was up 3.4 percentage points to span at 85.8% as a result of the losses incurred. The expense ratio was up 2.1 percentage points to post 25%. We will strengthen the long-term line profitability by promoting the growth of protection premiums, which serve as a source for profit.

On Page 3, the auto insurance revenue was up 11.2% year-on-year, thanks to the impressive growth of the online channel. The combined ratio was down 0.2 percentage points year-on-year to post 101.8%. The expense ratio improved 1.4 percentage points through online expansion and cost-cutting efforts, while the loss ratio was up 1.2 percentage points due to the increase in per claim amount despite the decline in the accident rate. Through continuous cost controls and regulatory improvements, the loss ratio trend is expected to improve in the second half of this year.

Turning to Page 4. General insurance revenue grew 19.4% year-on-year, thanks to the growth of the domestic revenue. And the recurring premiums grew 9.4%, but the underwriting profit in the first quarter fell 90.9% due to some one-off large claims events. For general insurance business, we will expand the domestic market share while focusing on stabilizing the loss trend.

On Page 5, despite the decline in the invested asset yield due to the low interest rate trend, the investment profit was up 0.8% year-on-year, thanks to greater dividend income from alternative investments. The investment yield is 2.8%, and the adjusted yield is 3.1%. We're strengthening the risk management in response to greater market volatility and we will solidify the profit base by investing in assets with higher interest rates, such as quality, corporate loans.

On Page 6, the asset/liability spread margin was up 1 basis point compared to the end of last year, to post 35 basis points as of the end of March, and the duration matching ratio is 83%. Despite the decline trend of long-term rates, we're expected to maintain the current level of spread margin in the second quarter through flexible operation of the offered rates.

I would now like to share with you some thoughts on post-COVID-19, mainly centered on our corporate competitiveness after the pandemic and our business fundamentals. First is about Samsung Fire & Marine's corporate competitiveness. As we experienced during the Asian currency crisis, the current virus outbreak is an opportunity to reevaluate business competitiveness. While the Asian crisis was a foreign currency crisis and COVID-19 is a pandemic, both of them are indeed a strong wake-up call for all of us.

In the long-term line, we opened a digital sales system in August 2019, which supports 24/7 customer consultation and policy subscription, and it provides extensive online education materials. Also, all of our agents received a tablet PC powered by strong marketing software to lead digitalization of marketing. As a result, the rate of electronic contract signing and electronic policy issuance is almost 100%. In fact, even when the outbreak was at its peak in February and March, new business volume did not decline and in March, the percentage of weekend consultation and sales increased to 38.4%. All of these are demonstrating our strength in the zero-contact age. In addition, AI and RPA are being applied to the entire underwriting process, including applicant evaluation and claims payment so that the percentage of electronic screening for long-term health insurance will increase from the current 70% to more than 90%, and we will equip our agents with digital capabilities so that they can continue to be efficient in the noncontact age as well.

The significance of the online channel has increased on the back of the coronavirus outbreak. In the direct channels, based on our success in online auto insurance sales, we're expanding long-term product offerings such as health insurance for people with existing conditions. In the first quarter, our auto insurance market share in the direct market that includes both online and telemarketing is 32.6%, and the market share in the pure online channel is 54.4%. In the online long-term insurance market for both life and nonlife insurers, our market share in the first quarter is 60.5% in terms of protection coverage. Samsung Fire & Marine will continue to lead digital innovation to offer differentiated digital experiences for our customers and enhance business efficiency.

Secondly, we're dedicated to further strengthening our business fundamentals. As you can see on Page 7, in 2019, excluding the investment income, the underwriting income in the industry turned negative to post KRW 430 billion of losses. But Samsung Fire & Marine recorded KRW 400 billion of profit, which demonstrates our underwriting competitiveness. In the first quarter, the pretax income declined on a year-over-year basis, but the accumulated figure from January until April shows a similar Y-o-Y trend.

This year, profitability will be key to our management and differentiated underwriting and coverage offerings will become even more important. On the back of weaker market competition expected, the health insurance new business is expected to shrink by more than 5%. In the first quarter, the monthly average new business is around KRW 17.5 billion but the monthly average recurring premiums that provide sources for profit are about KRW 850 billion, which is 50x more than the new business volume. In terms of asset management, as of the end of March, we were able to increase the spread margin to 35 basis points from the end of last year, while maintaining the ALM principles but other companies are struggling to grow the spread margin as they are selling high-yield bonds and buying long-term bonds to increase the asset duration. In addition, thanks to the proactive management of asset-related risks, the share of nonperforming assets in the portfolio is only 0.05%, which is the lowest in the industry.

Post COVID-19, we believe that Samsung Fire & Marine will enjoy more differentiation opportunities across all business areas, thanks to our existing strong fundamentals, which are combined with new zero-contact business capabilities. Thank you.

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Chang Joon, Samsung Fire & Marine Insurance Co., Ltd. - Head of IR [3]

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[Interpreted] Now we will have a Q&A session. (Operator Instructions)

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Questions and Answers

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Operator [1]

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(foreign language) (Operator Instructions) The first question will be provided by Kim Jin-Sang from Hyundai Motor Securities.

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Jin-Sang Kim, HMC Investment Securities Co., Ltd., Research Division - Analyst [2]

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[Interpreted] Hello, I am Kim Jin-Sang from Hyundai Motor Securities. I have 2 questions. The first question is related to the RBC ratio change. The RBC ratio has gone down quite significantly. So can you provide us with some breakdown information as to the reasons why the RBC ratio has declined? And in relation to this, is there any change expected to your dividend policy because of the corona outbreak, the financial authorities may become more conservative and there are many uncertain so I'd like to know if you are going to change your dividend policy?

The second question is about auto insurance. And you mentioned that in the second half of this year, the loss ratio for auto insurance is likely to improve. And there's an improving trend for the risk loss ratio for auto insurance, but still it is quite high. So what is your outlook for the risk loss ratio and the overall trend?

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Tae-Yeong Bae, Samsung Fire & Marine Insurance Co., Ltd. - CFO, Senior VP & Director [3]

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[Interpreted] I am CFO, Bae. I would like to answer the second part of your first question. And then regarding the RBC question, sales will be provided by the actuarial RM team leader. And then the executive from the automobile insurance strategy team will answer the question regarding auto insurance risk loss ratio.

I believe that your question is about the possibility of dividend -- possibility of the negative impact coming from the conservative stance on dividends, which were reported in the media as well as the declining RBC ratio. However, I'd like to say that the RBC decline -- ratio decline will not have a negative impact on our dividend policy.

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Che Bu Gyu, Samsung Fire & Marine Insurance Co., Ltd. - Executive Officer [4]

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[Interpreted] Hello, I am Che Bu Gyu from the actuarial RM team. Let me answer your question regarding the RBC ratio. And as you may know, since June of 2017, the government authorities have been strengthening regulations on the RBC. So in 2019 and 2020, there have been some updates, and they include the recognition of the risks related to retirement assets as well as the benchmark rate for variable products.

And as for the risk recognition of retirement assets, it was already recognized 35% of all in June 2018 and to the level of 70% in June 2019. And this year, June 2020, it will be 100% reflected.

And regarding the benchmark rate for floating-rate products, which is related to the duration of liabilities, 50% were reflected in December 2019 and 100% will be reflected in December this year.

And as you can see, the RBC ratio has declined by about 53 percentage points on a year-over-year basis and I would say that about 60% of that decline is related to the regulatory strengthening, and the remaining is related to the increase in corporate financing and some changes to the portfolio.

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Il-Pyeong Kim, Samsung Fire & Marine Insurance Co., Ltd. - Executive Director & Head of car insurance Strategy Team [5]

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[Interpreted] I'm Kim Il-Pyeong from the automobile insurance strategy team. Let me answer your question regarding loss ratio of auto insurance.

We have been increasing the auto premium rates since 2019, and we have been strengthening auto insurance underwriting. As a result, the loss ratio trend has been improving much more than expected. If you look at the figure in the first quarter, the loss ratio is 0.2 percentage points higher on a year-over-year basis. But when you look at the figure up to April, it is actually lower by 1.3 percentage points. When we were implementing premium rate hikes in February, we did simulation, and we thought that the combined ratio was going to improve by about 3 percentage points on a year-over-year basis. But now the loss ratio trend is improving much better. And with the impact of the coronavirus outbreak, we believe that the improvement of the combined ratio by the end of this year will be more than 3 percentage points.

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Jin-Sang Kim, HMC Investment Securities Co., Ltd., Research Division - Analyst [6]

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[Interpreted] So actually, when I said risk loss ratio, it was actually about long term insurance. And I understand the loss ratio trend for the auto insurance. But when it comes to the long-term business, your risk loss ratio trend is something that I'd like to know more about. Is it similar to auto insurance, the long-term risk loss ratio trend is improving as of April?

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Unidentified Company Representative, [7]

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[Interpreted] I am [Park Sung-Yong] from the long-term product development team. Let me answer your question regarding long-term risk loss ratio. The loss ratio trend in the first quarter has been stabilizing, but the figure from the first quarter that we reported in -- is mainly due to the loss ratio of the medical indemnity, which have been pretty high across the industry. But the medical indemnity loss ratio peaked in January, which was 130%. But after that, it has been stabilizing. So in February and March, the loss ratio has been stabilizing, mainly due to the coronavirus outbreak and other reasons. And in March, specifically, the loss ratio was 112%. And in April, we don't have the final figure, but we believe that it is actually under 110%. And moving forward, when we think about the long-term risk loss ratio trend, there are many variables and uncertainties regarding COVID-19 as well. So when it comes to the whole year figure, we believe that the loss ratio will increase slightly on a year-over-year basis, but we will continue to manage the risk loss ratio very tightly so that we can achieve much more than what we have planned.

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Operator [8]

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(foreign language) The next question will be provided by Kim Myung Wook from JPMorgan.

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Myung Wook Kim, JP Morgan Chase & Co, Research Division - VP [9]

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[Interpreted] I am Kim Myung Wook from JPMorgan. I have 2 questions. The first question is related to general insurance. The results in the first quarter, when it comes to general insurance, is not very good. And I'd like to get some more information, especially about underwriting, which underwritings have caused this result in the first quarter? And when we look at the overall general insurance underwriting trends for the past 7 to 10 years, compared to the past, I can see that your underwriting performance has been declining a little bit, and there's more volatility in your underwriting performance and the general insurance underwriting margin has been shrinking. So I'd like to know whether your initial plans or plans to increase the retention, in order to diversify your profit has led to this increase in volatility in your earnings? And I'd like to know if you believe that your company has enough pricing process or capabilities to deal with these risks? And I would like to know if you are capable of managing these risks? You've been talking about going overseas in the future. But if you don't have proper risk management capabilities, then your earnings may swing significantly as a result.

The second question is related to shareholder return policies. Samsung Fire & Marine, your stock price has been adjusted quite significantly. And recently, many nonlife companies are doing share buybacks. So when we think about shareholder return, as your stock price has been adjusted, what plans do you have to increase shareholder returns, including dividends and any potential share buyback? Even though your RBC ratio has gone down slightly, you're still #1 in terms of your solvency capabilities. So I'd like to know what you have in mind for shareholder returns in the future?

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Tae-Yeong Bae, Samsung Fire & Marine Insurance Co., Ltd. - CFO, Senior VP & Director [10]

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[Interpreted] I'm CFO Bae, I'd like to answer a question regarding shareholder return policies. And regarding underwriting losses from general insurance, we have commercial lines support team leader who'll answer the question. And then the risk management team will cover overall risk management capabilities.

Regarding shareholder return policies, I understand that there have been some share buybacks in the industry, and you also asked questions regarding dividend principles. As was announced previously, we do have a plan to increase the dividend payout ratio to 50% by next year. Given the fact that our current valuation is only 0.7x, and there's a voice coming from the market for a stronger shareholder return policies, including potential shareholder buyback -- share buybacks and we have been listening to these market voices very carefully. However, currently, the corona outbreak is continuing, and there are many uncertainties regarding our business. So it is not the right time for me to give you any specific details about treasury shares or dividend, DPS or anything other than the overall dividend payout ratio trend that we have been laid out already as our plan. But I'd like to mention that we are listening carefully to what the market is saying.

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Unidentified Company Representative, [11]

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[Interpreted] So I'm [Che De-Bong] from the commercial lines support team. I'd like to answer a question on general insurance. So you're asking reasons why we have a surge in the loss ratio in the first quarter from general insurance line and, of course, the results in the first quarter were not as good as expected. But it is not because of the increase in the number of claims events, but rather it is because of one large claim event.

And the second part of your question was about underwriting performance for the past 7 to 10 years. In order for me to explain on this question, I'd like to also give you some background information regarding pricing policies, retention policies and the overall market situations. As you may well aware, for the past 10 years, there has been soft market, and there were many alternative capitals available and the market competition has been fiercer, resulting in some price competition as well. So in these market circumstances, the general insurance margin has been shrinking, so we made some changes to our retention policies.

And to give you specific information about the one-off large claims event in the first quarter, it was actually a chemical factory explosion event.

And so to continue on with my background explanation, there have been very fierce price competition in the market. So in order to secure more margin from general insurance, we have made changes to the retention policy in order to cut reinsurance losses. We did not intentionally increase the retention artificially, but this is the kind of retention policy that we have been maintaining so far. And we are underwriting general insurance in Korea as well as in overseas markets. We have a very systematic framework in which we manage which risk we will underwrite and we have pricing tools, and we have other mechanisms. And we have been managing the underwrite -- underwritten risks in the general insurance line, and that is how we've been conducting our underwriting.

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Che Bu Gyu, Samsung Fire & Marine Insurance Co., Ltd. - Executive Officer [12]

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[Interpreted] I am Che Bu Gyu from the actuarial risk management team. Let me answer your question regarding the possibility of increasing retention, which will lead to a volatility in your underwriting. So the risk retention ratio in Samsung Fire & Marine has been increasing since 2015. However, this is mainly related to smaller underwriting cases domestically in a strategic manner, and it's not applied to the entire general insurance line. You may think that the recent earnings volatility has increased. However, when you look at the details, it is mainly related to some accidents that occurred overseas as well as this one-off high claim accident.

As for these accidents that took place overseas, it was not affecting Samsung Fire & Marine only, but other global reinsurance companies have been affected by these accidents overseas because they are mainly related to natural catastrophes.

And when it comes to our risk management and underwriting processes. First, regarding risk management, we reevaluate the net retention limit on an annual basis. It is reported and discussed at the risk management committee in a strategic manner. And we're managing the accumulated risks and limits, and we also have been improving our pricing tools for the past several years. And we also have a separate risk management committee for general insurance in order to review our business plans and discuss strategic directions.

So when it comes to decisions on retention percentages and underwriting and pricing tools, we have the risk management committee as well as general insurance risk management committee, which are the governing bodies for these decisions. And we also closely monitor whether the actual business divisions are complying with the decisions made by these committees.

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Myung Wook Kim, JP Morgan Chase & Co, Research Division - VP [13]

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[Interpreted] I would like to ask a follow-up question on general insurance. First, I'd like to say thank you for a very detailed explanation. But when we reflect on the past large events such as fires and explosions, when these events occurred in the past, I believe that the Samsung Fire & Marine impact was much less significant because these were mainly under the XOL excessive loss. So that was what I understand from the past. So when I look at the figures these days, I wonder if your XOL claims have been lowered compared to the past? Or whether the event cover has changed over the years? And I'd like to know whether the probable maximum loss for a single event has increased as a result?

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Che Bu Gyu, Samsung Fire & Marine Insurance Co., Ltd. - Executive Officer [14]

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[Interpreted] I'm Che Bu Gyu from the actuarial RM team. I believe that your question is related to our XOL management or operation. For the past several years, our XOL attachment point has been increasing. And as I mentioned, the attachment point has been increasing in consideration of many factors, including volatility, profitability and capital availability. And after a very detailed and thorough analysis, we determine our retention ratio and it is, of course, the past history of accidents is something that we consider as well. And such decisions are made annually by the RM committee. The changes to the XOL attachment did not lead to a result in the PML upward movement. And some of these volatilities that we experienced for the past couple of years is mainly because of large natural disaster-related accidents that occurred overseas, which not only impacts Samsung Fire & Marine and other reinsurance companies.

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Operator [15]

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(foreign language) The next question will be provided by Byung Gun Lee from DB Financial Investments.

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Byung Gun Lee, DB Financial Investment Co., Ltd., Research Division - Team Leader [16]

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[Interpreted] I'm Lee Byung Gun from DB Financial Investments. I have 2 questions, one related to RBC and the second is related to long-term insurance. When it comes to RBC, the figure was 311% at the end of last year, but in the first quarter, it has gone down to 296.9%. Is it partly because of the shrinking capital in relations to affiliate equity stake? Or is it because of increase in credit risk? And there may still be some impact from regulatory changes, may not be significant, but there may be impact. So what is your expectation for regulatory change impact on your RBC ratio by the end of this year?

The second question is about new business and especially health insurance new business in 2019, second quarter, was actually KRW 12 billion, but the beginning months, April for the second quarter seems to be lower than that figure. And you mentioned in your presentation that the overall market is going to shrink by about 5% in terms of new business. So what is your expectation for the second quarter? And I understand that you are going to re-underwrite some of the covers for driver insurance. And if there are similar cover types in the future, are you going to take a similar action? For instance, for the 6-month policy, if you apply retrospectively, then it means that you will underwrite additional risk by offering additional covers. So what is your expectation on the margin on this kind of product?

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Che Bu Gyu, Samsung Fire & Marine Insurance Co., Ltd. - Executive Officer [17]

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[Interpreted] I am Che Bu Gyu from the actuarial RM team. Let me answer your question on RBC. And regarding RBC, as you mentioned, the figure was 309.8% at the end of 2019, but it has gone down by about 10 percentage points to 296.9%. It is not because of credit risk change, but rather it is because of declining interest rates and the exposure increase.

And the second part of your question, the potential impact of regulatory changes on the RBC ratio is, I believe, going to be less than 20 percentage points. So when I say the impact will be less than 20 percentage points by -- it's by the end of this year because regulatory changes are reflected in June and December this year.

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Unidentified Company Representative, [18]

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[Interpreted] I'm [Sung Su-Hung] from the CPC planning team. I'd like to comment on your question regarding new business from long-term insurance. As you pointed out, the overall long-term insurance market in April has shrunk by about 4.2%. So when you look at the healthy insurance market in the first quarter, there was growth in January and February, but there was the decline by 9.4% in April -- in March. So while there was a shrinking of 9.4% in March, it's mainly because of the limitation on face-to-face consultations due to COVID-19 outbreak. But in April, the shrinking was 4.2% on a year-over-year basis. It is mainly because of the growth of driver insurance market as a result of new legislation. And going forward, in May, we believe that the health insurance market overall is going to decline by 7% to 8%. In the second quarter, the Y-o-Y basis, declining rate is going to be about 5% to 6% for health insurance.

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Unidentified Company Representative, [19]

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[Interpreted] I'm [Park Soon-Yung] from long-term product development team. Let me answer your question regarding the driver insurance cover. As you may be aware, there was a legislative change regarding driving in school zone because of a very highly reported accident, and so there has been growing interest and demand for driver license -- driver insurance in the market. In the past, Samsung Fire & Marine decided to apply retrospectively covers for additional expenses related to car accidents to the entire policy portfolio. So given this precedence that we have, we made the same decision for this. We made this decision because we understand that there are many customers out there who are concerned about increased driver-related risks. So in order to care for our customers and protect consumers, we've decided to apply the additional coverages in a retrospective manner for the entire customer base.

And also, you asked a question on the impact of such action on our loss ratio or the loss amount. According to our internal analysis, there is a very low probability of such large car accidents that may lead to less than 6 weeks of hospitalization, which may also lead to criminal litigation. According to statistical analysis, the probability of such accident happening is very low. Also, this particular legislation is about school zone accidents against children under the age of 13. So we believe that the more hazard possibility is very low. And as a result of such analysis, we made this decision. The loss amount estimated is going to be very low or almost none. And to a certain extent, this particular case will later be reflected in our experiential table, therefore, there is very minimal or no impact on our P&L.

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Operator [20]

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(foreign language) The next question will be provided by Yafei Tian from Citigroup.

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Yafei Tian, Citigroup Inc, Research Division - Assistant VP and Analyst [21]

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If I may, I will ask the question in English. I have a quick follow-up on the RBC ratio. Management currently provide the guidance of 20 -- additional 20 percentage points of decline in RBC ratio by end of this year. But if we look at the peers, we don't see as much a bigger impact from the regulatory changes. Just want to understand what's driving the higher impact to Samsung as opposed to peers?

Then, second question is around the expense ratio. Management highlighted going forward, the zero-touch economy, the digital push. When do you think we'll start to see that reflected in lower expense ratio? And is there a guidance or target for expense ratio in the medium to longer-term?

Finally, I think in the conference call, you already mentioned that the yield -- investment yield has been relatively stable at this point. But with the longer-term interest rate falling, when should we start to see a meaningful decline in the future investment returns being reflected in the earnings outlook? (foreign language)

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Che Bu Gyu, Samsung Fire & Marine Insurance Co., Ltd. - Executive Officer [22]

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[Interpreted] I am Che Bu Gyu from the actuarial RM team. Let me answer your question regarding the RBC ratio. Regarding the calculation of interest rate risk for RBC calculation, we're using the table method provided by the financial supervisory service to calculate the duration. And basically, to calculate the duration for floating-rate products, we take a look at the difference between disclosed interest rates and minimum guarantee rate. And when it comes to the base rate for floating-rate products, there's a difference between Samsung Fire & Marine and the peers. Indeed, our percentage of floating rate policies in the portfolio is pretty high compared to the peers, and we have lower minimum guarantee rates compared to the peers. So we are advantages in terms of interest rate risk calculation, but there are other areas where we may be disadvantaged.

When you look at the peers in the industry, they are selling off their bond holdings, but they have high offered disclosed rates. So even though they're selling off their fixed income securities, there is some advantage for the other companies in the industry. However, there's a smaller difference between the disclosed rates and the minimum guarantee rates. As a result, the duration for Samsung Fire & Marine is calculated to be longer. As for this particular difference, the financial authorities are well aware of this. Thank you.

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Unidentified Company Representative, [23]

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[Interpreted] I am [Lee Won-Song] from the corporate management support team. Let me answer your question regarding the expense ratio. You can see Y-o-Y growth of the expense ratio from last year until this year, and it is mainly attributable to the increase in selling and administrative costs. And it is mainly because there was increased sales in January and February this year. As a result, the sales and distribution costs went up on a -- temporarily. However, it's been stabilizing in April. And plus the employees, both executives and regular employees, were all dedicated to cost-cutting efforts, and we've been applying digital and AI and other solutions to increase business efficiency. So we believe that in the second half of this year, there will be a meaningful improvement of the expense ratio.

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Unidentified Company Representative, [24]

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[Interpreted] I am [Park Chang-Hun] from the finance planning team. Let me answer your question regarding investment yields. And as you pointed out, the mid- to long-term interest rates are declining. As a result, it is unavailable that the investment yields may shrink to a certain degree. But in order to defend our investment margin, we have been focusing on increasing the portions of corporate loans and retail loans, which offer better profit. And we have very good asset quality, and we have been doing very well in terms of ALM. So compared to the other insurance companies in Korea that have to -- that have the pressure of purchasing long-term bonds, we don't have such pressure as much as other peers. So we do have much more room to invest in high-margin assets. And this is why we believe that the declining -- the decline scale of the investment yield for Samsung Fire & Marine is going to be much smaller than the peers.

Does that answer your question?

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Yafei Tian, Citigroup Inc, Research Division - Assistant VP and Analyst [25]

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Yes.

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Operator [26]

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(foreign language) The next question will be provided by Sung Yong Hoon from Hanwha Investment Securities.

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Yong Hoon Sung, Hanwha Investment & Securities Co., Ltd., Research Division - Analyst [27]

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[Interpreted] I'm Sung Hoon Yong from Hanwha Investment & Securities. I have 2 questions. The first question is about the expense ratio in auto insurance. What is your overall market -- what is your overall target percentage for the online auto insurance in your entire auto insurance business? And if you reach that target, what is your expected expense ratio combining online and off-line channels?

And in the first quarter, I saw in the news that you responded to the market situations by increasing the incentives, and that may be translated into a 1% increase in the sales and distribution costs for auto insurance. But what is the trend in April and May?

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Il-Pyeong Kim, Samsung Fire & Marine Insurance Co., Ltd. - Executive Director & Head of car insurance Strategy Team [28]

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[Interpreted] I'm Kim Il-Pyeong from automobile insurance strategy team. Let me first comment on the combined ratio. And due to the coronavirus outbreak, there has been a greater demand for noncontract sales activities. So overall, in the market, the direct channel percentage has been increasing dramatically. And the share of the direct channels in our auto insurance sales is about 47%. We don't have any particular target for this percentage. But according to our simulations, when the percentage of direct channel sales increased by 5%, the combined ratio will improve by 1.4 percentage points. So regarding the trend going forward, we will maintain a similar strategy of expanding the direct channel sales. And internally, we believe that it's going to be around 50% going forward.

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Unidentified Company Representative, [29]

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[Interpreted] I am [Hung Song-Won] from CPC planning team. I'd like to comment on the incentives and the sales and distribution costs. You asked a question about the incentives and commission structure. But actually, starting from March this year, we have been lowering the commission rates for the GAs. So the sales and the distribution cost has been declining already in March, and also we made some additional adjustments in April. So we believe that this declining trend will continue from April to the end of this year. Thank you.

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Unidentified Company Representative, [30]

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[Interpreted] With no further questions, we'd like to end the 2020 first quarter earnings results by Samsung Fire & Marine. Thank you all for joining us.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]