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Edited Transcript of 001450.KS earnings conference call or presentation 20-Feb-17 7:00am GMT

Thomson Reuters StreetEvents

Q4 2016 Hyundai Marine & Fire Insurance Co Ltd Earnings Call

Seoul Feb 20, 2017 (Thomson StreetEvents) -- Edited Transcript of Hyundai Marine & Fire Insurance Co Ltd earnings conference call or presentation Monday, February 20, 2017 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Qnam Lee

Hyundai Marine & Fire Insurance Co Ltd - IR Head

* Lee Yoon Hung

Hyundai Marine & Fire Insurance Co Ltd - CFO, Head of Corporate Planning and Management Group

* Hwang In-Kwan

Hyundai Marine & Fire Insurance Co Ltd - SVP Financial Planning Division

* Han Seong Gun

Hyundai Marine & Fire Insurance Co Ltd - SVP of Marketing Division

* Lee Cheon Hu

Hyundai Marine & Fire Insurance Co Ltd - SVP of Automobile Insurance Division

* Seong Jin Min

Hyundai Marine & Fire Insurance Co Ltd - Head of Long-Term Insurance Division

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Conference Call Participants

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* Lee Byung Gun

Dongbu Securities - Analyst

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Presentation

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Operator [1]

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(interpreted) Good morning and good evening. Thank you, all, for joining this conference call. And now, we will begin the conference of the fiscal year 2016 earnings results by Hyundai Marine & Fire Insurance. This conference will start with a presentation followed by a divisional Q&A session. (Operator Instructions)

Now, we shall commence the presentation by Hyundai Marine & Fire Insurance.

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Qnam Lee, Hyundai Marine & Fire Insurance Co Ltd - IR Head [2]

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(interpreted) Good afternoon, this is Lee Qnam, head of the Hyundai Marine & Fire IR team. Let me first thank everyone for joining us at this conference call despite your busy schedule.

Before we begin the conference call, let me introduce the executives present here with us. First, the CFO, [Lee Yoon Hung], head of corporate planning and management group. Hwang In-Kwan, Senior Vice President of Financial Planning Division, [Han Seong Gun], Senior Vice President of Marketing Division, [Cheol Yung Sung], Senior Vice President of Management Support Division, [Lee Cheon Hu] Senior Vice President of Automobile Insurance Division, [Seong Jin Min], Head of Long-Term Insurance Division.

This conference call will last for an hour and a half with consecutive interpretation. The CFO will first present the Company's 2016 earnings, EV calculations, and business plans for 2017, to be followed by a Q&A session.

The materials used for this conference call are based on the unconsolidated financial statements using KIFRS, and the auditor's report will be disclosed in mid-March before the shareholder's meeting.

Let me also issue a disclaimer that the Company's 2017 projections are subject to change depending on economic and business circumstances. And we will now begin our presentation.

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Lee Yoon Hung, Hyundai Marine & Fire Insurance Co Ltd - CFO, Head of Corporate Planning and Management Group [3]

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(interpreted) Good afternoon, everyone, this is Lee Yoon Hung, CFO and Head of the Corporate Planning and Management Group at Hyundai Marine & Fire.

Let me first thank everyone for joining us at this 2016 earnings conference call.

The Company went through challenges until 2015, but our earnings improved significantly in 2016 thanks to the management's focus on profitability and deregulations in insurance pricing. There was marked improvement in loss ratio in auto insurance, reducing the loss, and helping improve profits in 2016.

I will now deliver the presentation in the order of the slides.

First, the 2016 highlights on page 4. Direct premiums stood at KRW12.6 trillion, an increase by 3.8% year-on-year, to see revenue contribution by product line, auto insurance went from 22% in 2015 to 25% in 2016, an increase by 3 percentage points year-on-year. Long-term insurance accounted for 66%, lower by 3 percentage points.

Combined ratio was 103.7%, an improvement by 1.4 percentage points. Loss ratio was 84.6%, lower by 2.3 percentage points mostly owed to the drop in loss ratio in commercial and auto insurance. Expense ratio was 19.1%, higher by 1 percentage point.

Market share stood at 17% similar to the level in 2015, net income was KRW399.7 billion, up 96.6% from the previous year, thanks to improved loss ratio. Consolidated net income was KRW409.9 billion, up 93%. Next is performance by business line. Starting with commercial in page 5, direct premium written was KRW1.79 trillion, higher by 3.7% from the previous year.

Loss ratio was 65.2%, lower by 7.3 percentage points, and expense ratio, 18.1% higher by 2.9 percentage points, combined ratio was 83.3%, improving by 4.4 percentage points. Combined ratio for commercial has been stable at 85% level for the past few years.

The big drop in loss ratio is attributable to two reasons. Absence of large scale accidents, and the Company's effort to strengthen underwriting for low margin product line.

Low margin products accounted for 18.7% out of commercial line revenue in 2016, lower by 3.3 percentage point. Their loss ratio was 93%, lower by 7 percentage points from previous 100% level. The Company will keep managing contributions of low margin products and loss ratio this year.

Next is long-term insurance on page 6. Long-term revenue was KRW8.36 trillion, an increase by only 0.1% from the previous year, but when looked at separately between protection type and savings type, it increased in protection by 7.4% but fell by 17.4%in savings.

This is owing to the Company's intensified focus on protection type in the past few years. It is also evident in new business trend. Total new business was average KRW9 billion per month, a decrease by 18%, most of the drop came from the decline in savings types, which fell by 55%, healthcare had averaged KRW6.4 billion per month also fell by 3.5% from the previous year. Property remained little changed.

In the new business portfolio, protection type now takes up 85% while healthcare also grew to 71%. Among healthcare, children's and convergence products remained at last year's level, while drivers and cancer products achieved growth. New business channel mix is similar to last year's, but in healthcare, the GA channel increased slightly.

Let me move on to long-term insurance on page 7.

Out of the total premium written in long-term insurance, protection type accounts for 75% and healthcare, 68%, both making an increase. But savings type fell from 32% in 2014 to 25% in 2016, this trend will continue into 2017 with protection type rising in share.

Risk premium and expense loading premium, the source of long-term insurance profits, are steadily on the rise. Risk and expense loading premiums' proportion rose to 45% in 2016 while risk premium's share also rose to 26%.

They were both up by 5 percentage points from 2014. Risk-loss ratio was increased until 2015, then stabilized in 2016 staying at 92.4%, improvement by 1 percentage point. The Company has been trying to improve the portfolio and the price increase for medical indemnity coverage from 2015 is showing the effects.

Loss ratio improvement is expected to continue for the mid-term. The Company's persistency ratio, best among peers, has improved slightly again in 2016, a trend that is likely to continue into 2017.

Next is auto on page 8. Direct premium written for auto was KRW3.15 trillion, up by 15%, this is a result of our strengthened underwriting guideline. Loss ratio improved considerably at 81.8%, lower by 7.8 percentage points, expense ratio also improved by 0.5 percentage point, bringing the combined ratio to 102.9%, down by 8.3 percentage points. Loss ratio improvement in auto is expected to continue in 2017.

As for the distribution channels, the Company had offline and PM until 2016 at 84% and 16%, but with the addition of the CM channel from 2016, offline's share was reduced.

CM's shares as kept rising from the inception, and will continue to do so in and after 2017.

Next is asset management on page 9. As of the end of December 2016, total invested asset is KRW29.6 trillion, increased by 13%. Domestic bond takes up 36% on a declining trend, while load and overseas investments keep increasing in share.

Out of domestic bonds, government bonds increased slightly in share. In the lower portfolio, corporate loans also rose slightly, the loan asset quality is quite high. Overseas investments, 15% of total invested assets is focused on bonds with structured bonds accounting for 90%.

Next is page 10, continuing with asset management. Investment yield was 3.5%, lower by 10 basis points from the previous year. Savings account funding cost was 3.26% lower by 20BPs. Proportion of floating credit reserve was 93% level.

Savings account investment yield which is related to funding cost was 3.89%, down by 50 basis points. The decline is likely to continue in 2017 as the low rate environment already has been persistent for the past few years. Crediting rate set conservatively given the current market rates and the Company's investment yield trend has recently fallen to 2.4%.

The Company is making asset duration longer to prepare against the RBC regulations where the maximum duration will become longer from 20 to 25 years, and then to 30 years.

We will keep managing our asset duration in strengthening RBC regulation.

Next is capital, page 11. Shareholders' equity was KRW2.7 trillion, increased by 13%, solvency ratio was 158% down by 12.9 percentage points, mostly due to regulatory strengthening. In 2016, regulatory tightening included higher credit risk confidence level, calculation of the risk for unpaid obligations, and introduction of consolidated RBC.

Additional changes are planned in 2017, but the impact will be minimal for us as the Company is mostly ready for them.

Dividend per share in 2016 has been set at KRW1350 similar to the 2011 level. Dividend payout ratio is 27% in line with the average of 26% in the past six years. Dividend yield is 4.2%.

Let me briefly explain about the EV calculation results for 2016.

Page 13 shows EV at KRW5.19 trillion, up 7.4%. out of this, VIF was KRW2.5 trillion, and A&W was KRW2.7 trillion.

Page 14, the A&W is up 2%, mostly due to increased profit.

Page 15, VIF is KRW2.5 trillion, higher by 2.8%. Present value of future premiums has gone up but so did capital costs following the more stringent RBC regime. As a result, the profit margin fell by 0.5 percentage points to 6.3%.

Page 16, new business value, is KRW456 billion, up 17%, present value of future premium fell 3.8% due to negative growth in new business, but present value of future profits went up 16% thanks to the portfolio mix effect and change in assumptions. As a result, total margin was 8%, up by 1.4 percentage point. For your information, APE margin was at 35% level.

Page 17, assumptions, are for your reference.

Next is the Company's business plan for 2017. For 2017, Hyundai Marine & Fire defined its business plans under the principles of profitability focus, operational competitiveness, and leading the future.

First is our revenue plan on page 19, [total] direct premium written is KRW12.85 trillion, higher by 2.2% from last year. Commercial is KRW1.08 trillion, similar to last year's and long-term KRW8.32 trillion, again, little change from last year.

Under long-term, looking at protection and savings, protection shows an increase by 5% while for savings, it is decreased by 16%. New business is planned at average KRW9.2 billion per month, higher by 3% YOY. For protection, new business is planned at average KRW8 billion per month, higher by 5.6%.

For auto, direct premium plan is KRW3.4 trillion, up by 7.8%, the Company intends to maintain the current marketshare in 2017 while expanding profitable portfolio mix.

Next is earnings plan, page 20. Total loss ratio is planned at 83.9%, down by 0.7 percentage points. For commercial, it is planned at 67.5%, higher by 2 percentage points because it was quite low in 2016. For long-term, it is likely to keep falling in 2017 and stand at 89.8%.

For auto, loss ratio is planned at 80.5%, down by 1.4 percentage points, thanks to the carry over effect of the 2016 price adjustment, regulatory improvement, and portfolio improvement. Expense ratio is planned at 19.6%, up by 0.5 percentage points as G&A cost increases.

It's not in the slide, but investment yield is targeted at 3.15

It's not in the slide, but investment yield is targeted at 3.1%, 40 basis points lower than last year's 3.5%. When last year's one off income is excluded, the actual drop would be 20 basis points.

Net income is planned at KRW405 billion, an increase by 1.3%. Again, if we eliminate the effect of one off profits last year, the actual increase of earnings in 2017 would be 15%. 2017 looks to be a challenging year with deepening low growth trends and uncertainty in financial markets.

But the Company will try to ensure stable profitability through management strategy focusing on profitability and efficiency and ultimately, will improve shareholder's value.

This concludes my presentation. Thank you for your attention.

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Questions and Answers

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Qnam Lee, Hyundai Marine & Fire Insurance Co Ltd - IR Head [1]

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(interpreted) And now, we are ready to take your questions. For the sake of efficiency, we would like to limit the questions to two per person.

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Operator [2]

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(interpreted) Now the Q&A session will begin.

(Operator Instructions).

Byung Gun Lee, Dongbu Securities.

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Lee Byung Gun, Dongbu Securities - Analyst [3]

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(interpreted) I have two questions. So first, is about the duration on page 10, I can see that the duration has increased quite a lot, and also when I looked at the RBC materials earlier, I see that already at that time, the duration has been extended considerably in June already.

So this means that you have been making a lot of preparation against the expected extension in the liabilities duration for some time.

And since you have been reducing the share of domestic bonds, this probably means that it has been occurring on the overseas investment side, meaning that on the -- also on the overseas bond, so what is your current duration for overseas bond and also, you believe that the currency risk would negatively affect your RBC, so first, it's about this currency risk.

And then the second question, now, of course, we should thank you for paying out such a healthy dividend but then in the market, there are some concerns about the Hyundai Marine & Fire's RBC, given that, there are some feelings in the market that the dividends are a bit higher than expected and so now, my question is then looking ahead, what do you believe would be the general direction of the dividend payout ratio as well as the dividend per share and how do you believe that that is going to translate into the actual numbers in 2017.

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Hwang In-Kwan, Hyundai Marine & Fire Insurance Co Ltd - SVP Financial Planning Division [4]

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(interpreted) Now, I would take the first question, I am Hwang In-Kwan from the financial planning division and as you have rightly pointed out, yes, we have been increasing the duration since last year and because there was the announcement already about the extension in the duration, and then you have also rightly pointed out, we have been increasing our purchase of long-term bonds especially offshore.

So for the duration, we will try to manage our interest rate risks within the range that we do not veer away from the minimum rate risk, and then for this year, we would also base our management on the calculation of the rate risks.

And also, another part of our question about the current duration for foreign bonds, it's 11 years.

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Lee Yoon Hung, Hyundai Marine & Fire Insurance Co Ltd - CFO, Head of Corporate Planning and Management Group [5]

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(interpreted) And regarding your second question, this is the CFO speaking. For the dividend payout ratio, the Company has been maintaining around 25% level for the past few years, although it did go up slightly to 26.9% in 2016.

Again, this was actually lower than the previous year. So in general, our dividend policy will remain at around 25% barring unexpected circumstances.

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Lee Byung Gun, Dongbu Securities - Analyst [6]

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(interpreted) Actually, I would like to ask for some more clarification because in the market, there are some concerns about the currency risk because the hedging is normally for less than one year. So there are some concerns on whether there are any risks involved with that if you could provide further elaboration.

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Hwang In-Kwan, Hyundai Marine & Fire Insurance Co Ltd - SVP Financial Planning Division [7]

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(interpreted) Again this is the Financial Planning Division. Now regarding the currency hedging, now previously until now we needed to have the hedging for over one year in order to have the duration for the underlying assets recognized, but then this regulation is going to go away, which has been announced already.

So, based on this new change, now we are going to maintain our hedging for a shorter period in order to increase our return as much as possible. And I do not believe that the deregulation in the currency hedging is going to increase risk in any way.

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Operator [8]

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(interpreted) The following question will be presented by (inaudible) JPMorgan. Please go ahead, sir.

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Unidentified Participant [9]

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(interpreted) I also have two questions. First is about the capital. So, we see that the rates are rising and it seems that the new solvency ratio is a bit lower than your peers, and now assuming that the rate will go up by 50 to 100 basis points in the future, then what would be the Company's capital raising plan and now that I believe in relation to this the RBC ratio target by the end of this year would be important.

And then the second question is about your healthcare, so in your EBIT calculation, it seems that along the loss ratio assumptions, it seems that your assumptions for the loss ratio were more positive than the previous years.

So then looking ahead to the next three years, do you expect the loss ratio to improve, if yes, by how much and have such a [robust] expectations been reflected into your EBIT calculation?

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Lee Yoon Hung, Hyundai Marine & Fire Insurance Co Ltd - CFO, Head of Corporate Planning and Management Group [10]

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(interpreted) This is the CFO answering the first part of our question. So, it seems that you have implied that our available for sale securities have gone down between the end of 2015 and 2016, but I would like to point out that they have actually remained largely unchanged and actually some available for sale securities have increased.

But of course, we do have our contingency plan in the event of rate hike, so for example increase in the capital requirements and there is also the expectation in the extension of the liabilities maturities, so we also try to (inaudible).

But then if the rate continues to increase, then as we have done in the past, we would go to the market and perhaps issue (inaudible).

And for the RBC ratio target for the end of 2017, it is at mid to high under 50% level and although it is true that our solvency margin was lowered compared to last year by 12.8 percentage points, it is mostly due to regulatory tightening and the Company continues its improvement in loss ratio and along with it improving our profitability, so I do hope that you take that into consideration.

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Seong Jin Min, Hyundai Marine & Fire Insurance Co Ltd - Head of Long-Term Insurance Division [11]

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(interpreted) I am from the Long-Term Insurance Division and our rates, the premium rates for medical indemnity have been going up since 2015 and as a result, we have been seeing improvement in our medical indemnity loss ratio in the second half of 2016.

And for the future we believe that the premium rate for medical indemnity will continue to be adjusted every year and as a result of that we believe that the risk loss ratio will also continue to go down.

For the medical indemnity premium rate, for the year 2016 it was increased by 27% and because this will be renewed continuously, we believe that going forward, the loss rate improvement would also continue.

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Unidentified Company Representative [12]

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(interpreted) Now, I am from the Management Support Division and I would like to answer your question about the loss ratio of (inaudible).

So now for the loss ratio, now our value of new business went up by 17% and this is mostly because of the risk loss ratio improving by 1.1% and we believe that the improvement in the risk loss ratio would also continue.

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Unidentified Participant [13]

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(interpreted) Well then, we asked additional question now about the capital, now if the rate continues to improve, if the interest rate continues to go up, then the Company's plan to utilize more of the reinsurance in the life and the PNC side.

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Lee Yoon Hung, Hyundai Marine & Fire Insurance Co Ltd - CFO, Head of Corporate Planning and Management Group [14]

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(interpreted) This is the CFO speaking and it is one of the many options that are under review, but no decision has been made.

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Operator [15]

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(interpreted) The following question will be presented by (inaudible) Securities. Please go ahead, sir.

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Unidentified Participant [16]

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(interpreted) So first question is about the auto insurance. Now recently the number one company in the market, in terms of market share has announced that it is going to reduce its premium for auto insurance and tried to expand its market share.

Now obviously, this would put pressure on your company to increase online revenue. So, how do you plan to respond to this?

And then also now in general the market accepts there should be some kind of a price competition, perhaps by reducing the premium, the pricing, so how would be the company's plan?

And the second question is about your risk loss ratio for long term insurance and you have projected more improvements, continued improvement in the risk loss ratio in 2017 as well and that's welcome news and if you could elaborate further.

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Lee Cheon Hu, Hyundai Marine & Fire Insurance Co Ltd - SVP of Automobile Insurance Division [17]

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(interpreted) So I would like to take your first question. This is Lee Cheon Hu from the Automobile Insurance Division. Now we have seen a lot of improvements in auto insurance business in 2016.

Our combined ratio was 102.9% in 2016 and expected 101.9% in 2017. So, we proved that it's actually too early for us to reduce prices and the company's principal is that we are not going to indiscriminate prices lowering of prices that will eat away at our profitability.

But in order to maintain our price competitiveness, we are taking some other actions. So, for example, we are going to ratchet up our marketing for the children discount and then by doing so, we would try to attract more high margin, highly profitable consumers and also offer no claim discounts and also have planning segmentation of the market so that we can more timely target some of the highly profitable consumers.

So, going forward, we will try to offer products and come up with strategies that are in line with the given market circumstances and by doing some of these, we'll continue to remain focused on our profitability.

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Seong Jin Min, Hyundai Marine & Fire Insurance Co Ltd - Head of Long-Term Insurance Division [18]

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(interpreted) This is the Head of the Long-Term Insurance Division speaking, and yes as you have pointed out about the risk loss ratio, yes, the Company is under some challenges [with you guys do this], but this is mostly because of the medical indemnity insurance and as was mentioned earlier, we have increased the premium rates for the medical indemnity products at 27% in 2016 and 2017.

So, thanks to such increase in premium rates, I now believe that we do have competitiveness in the risk premium rate for our medical indemnity products and looking at the underwriting year basis, then I believe that our loss ratio for medical indemnity is also in line with other companies as well.

And for the underwriting, so we are continuing to make improvements, so for example there was increase in the premium rate for the medical indemnity and overall, we are trying to make improvement on the portfolios, so for example, on some of the high-quality assets.

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Operator [19]

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(interpreted) The following question will be presented by (inaudible) from KB Securities.

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Unidentified Participant [20]

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(interpreted) I have some questions about your guidance. So, in 2016 there was the voluntary retirement as well as incentives and there have been provisions for them already, but the expense is driven by 0.5 percentage points, I wonder why regarding that.

And then also for the long-term new business on a monthly converted basis, you are projecting 2.8% increase. And also, they will increase by 2.5% and new business for the protection side, but then overall the new business is decreasing, so in your guidance, which products do you particularly have in mind and when you offer this prediction?

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Unidentified Company Representative [21]

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(interpreted) So I would like to take your first question. I am from the Management Support Division. Now the expense ratio for 2017 is projected at 19.6%, up by 0.5 percentage points and this is due to the increase in the direct marketing spending for 2017, but we will try to contain the expenses as much as possible by trying to reduce the G&A.

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Han Seong Gun, Hyundai Marine & Fire Insurance Co Ltd - SVP of Marketing Division [22]

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(interpreted) So I will like to answer your question. I am from the Marketing Division, and now as you have rightly pointed out, in the long-term insurance market, yes, it is currently mired in low growth at around 1% and the Company's guidance is about 5.6% growth.

Now what we intend to do is, now we need to improve the productivity in the panel especially in the offline [supply] channel and by doing so, we will try to improve their share out of total revenue. And also for the GA channel, we are going to improve their competitiveness, because we see the sales through those channels are also increasing.

And then also for the CM channel as well, we already have a sizable database featured there. So, we are also going to utilize such data on the direct marketing for the long-term insurance as well.

And now by product line, the Company is struggling a little bit in the drivers' insurance side, but we are planning to double the revenue in the drivers' insurance from the current KRW500 million to KRW1 billion per month.

And then also on the property insurance side as well, we will to pull up the revenues from the KRW1.2b from KRW1.5 billion per month. So, as we are going to keep our focus on the drivers and property insurance site and by doing so, we intend to improve -- increase our growth in the protection side by 5.6%.

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Operator [23]

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The following question will be presented by (interpreted) [Hannah] Investment Securities. Please go ahead, sir.

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Unidentified Participant [24]

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(interpreted) Then I have one question about auto insurance. Now actually a similar question came up earlier, but then just from an outsiders point of view, even if the company tries to more finely segment its customers and try to gain more market share, but over time, if your peers were to copy that strategy and catch up with that, then I believe that in the end the Company will be left with no other choice but then to reduce the price.

I would say that that would be the competition, so what would you say for this kind of scenario?

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Lee Cheon Hu, Hyundai Marine & Fire Insurance Co Ltd - SVP of Automobile Insurance Division [25]

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(interpreted) I am from the Automobile Insurance Division and I believe that actually not just for (inaudible) but also for players, they also have to remain profitability focused because of the structure of the market and because of that I do not believe that they will be in the position to indiscriminately compete with pricing.

So, as I mentioned earlier, we will of course keep in mind the market trends as well as our earnings status and our pricing policy would also remain focused on profitability.

But given the circumstances at the time, for example of the market share, if it is deemed necessary, then the Company would also respond in appropriate manner.

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Operator [26]

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The following question will be presented by (interpreted) from BNP Paribas. Please go ahead, sir.

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Unidentified Participant [27]

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(interpreted) Now my question is also two-fold. First is about your asset management.

So, as you have mentioned earlier, in the past year it seems that you have increased your exposure to overseas investment especially in corporate loans, and that this seems to be a little bit different by the provision by the commercial banks who are actually wary of corporate loans these days.

So, if you could share with us your reasons and grounds for being optimistic about the credit risk on corporate loans.

And the second question, now regarding the risk loss ratio, we see that compared to the guidance in the four to five years, now for this year as well, in 2016 it seems as if the risk loss ratio is a little bit higher than the guidance, although it did go down slightly in 2016 as well.

So perhaps you have underestimated the claimed inflation in your projections for the risk loss ratio. So, how should we look at the guidance for 2017?

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Hwang In-Kwan, Hyundai Marine & Fire Insurance Co Ltd - SVP Financial Planning Division [28]

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(interpreted) Now this is Hwang In-Kwan speaking from the Financial Planning Division and regarding your question about the corporate loans, yes, it is true that it went up from KRW2.46 trillion in 2015 to KRW3.06 trillion in 2016 and most of them are invested in mortgage backed loans and (inaudible) or the infrastructure and the PS loans.

Now whereas the loans by banks are mostly credit loans, in our case for example the mortgage backed loans, they have very good collateral in terms of the real estate, then also for the SOC or the infrastructure loans, we also have very good backing by either the government or we know that the project funding is quite sound.

And also for the PS as well now, this is mostly for the acquisition and buyout funding and in such a case as well there is also very good buffer in terms of the underlying assets, so that is why we believe that the credit risk is quite low.

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Seong Jin Min, Hyundai Marine & Fire Insurance Co Ltd - Head of Long-Term Insurance Division [29]

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(interpreted) And I am from the Long-Term Insurance Division and I will like to answer your question, the second one, and yes, it is true that the number of claims is increasing in 2016 and there was a higher increase in the number of claims than expected in the first half and in the second half, the increase in the number of claims was not as high as in the first half.

And then also as explained earlier, in the second half of 2016, compared to on a year-on-year basis, there was about 10% improvement in the loss ratio in the medical indemnity.

And when we were adjusting the guidance for 2017, we did account for the increase in the number of claims than expected in 2016 and also because we will be seeing the effect of the increase in the risk premium rate in 2017 as well. We believe that we will be able to meet the numbers in guidance.

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Unidentified Participant [30]

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(interpreted) So, I have some additional questions about the asset management. So, does that mean that in 2017, you will keep investing into loans and also overseas investment at roughly the similar percentages in 2016?

And then the second question is about your risk loss ratio. So, I am not sure about the medical indemnity side, but then I can see that in the second half of 2016 as compared to 2015, there has been actually a slight increase. So, in terms of these, so it was a bit higher than the guidance so if you could explain this please.

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Unidentified Company Representative [31]

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(interpreted) Now regarding your first question, although our investment yields has gone up slightly, we do believe, we still we are in a low rate environment.

So, in 2017, we will keep trying to increase our investment in loans and overseas investments and alternative investments at the rate of 0.4 percentage points for loans, 0.9 percentage points for overseas and 1.2 percentage points for alternative investments.

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Seong Jin Min, Hyundai Marine & Fire Insurance Co Ltd - Head of Long-Term Insurance Division [32]

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(interpreted) And I am from the Long-Term Insurance Division, and regarding your second question, yes, it is true that the number of claims was much higher than expected, but then we see that also in the second half, the loss ratio was apparently stabilizing. So, compared to 2015, the loss ratio actually improved by 10 percentage points than earlier.

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Operator [33]

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The following question will be presented by (interpreted) NH Investment Securities.

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Unidentified Participant [34]

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(interpreted) I also have two questions, first is about your RBC, so if there are regulatory changes in the RBC and if your RBC is at the 160% level and if it's [sustained] at around 160% level, will this be satisfactory to the Company?

That's the first concern.

Then the second concern is about the channel, especially for the long-term product. So, in terms of the offline, face-to-face channel, there are (inaudible) channels and GA channels, and so where does the Company focusses more, between the (inaudible) channel and the GA and it seems that the competition over GA channel intensifying in the market.

So does the company to plan to expand its GA channel, perhaps any plans to set up a subsidiary for GA channel?

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Lee Yoon Hung, Hyundai Marine & Fire Insurance Co Ltd - CFO, Head of Corporate Planning and Management Group [35]

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(interpreted) Now this is the CFO answering your first question. A 100% level RBC will not be satisfactory for the Company, but currently that is our estimation and we are preparing to maintain that level because of the impending regulatory changes for the short-term as well as the rate hike for additional terms.

But then going forward, we will keep trying to improve our loss ratio and also lower the expense ratio so that we can keep improving our profitability as well as our capital and ultimately the actual intent of having higher solvency ratio than this.

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Han Seong Gun, Hyundai Marine & Fire Insurance Co Ltd - SVP of Marketing Division [36]

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(interpreted) Now I am from the Marketing Division, and to answer the question about the distribution channel. The Company intends to keep growing actually based on (inaudible) channels and the strategy is for the channels is that we need to improve the competitiveness by beefing up the staffing.

So we will keep trying to recruit more people into the (inaudible) channels and also improve their over-productivity and improve their consulting capability, and overall improve the culture at each (inaudible) channel and by doing so, we will try to increase their share out of the current revenue which is above 40% and we all keep trying to improve this level.

And for the GA channels, they account for about 30% of our channels, and our strategy here is to maintain an appropriate market position in the GA channel side. And our main focus here is to improve the efficiency by combining and consolidating some of the agencies.

And in terms of the possibility of setting up a separate subsidiary for GA channels, we will review some of the prior cases of the peers as doing something similar and we will make our decision in a conservative manner.

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Unidentified Company Representative [37]

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(interpreted) And this will be the last question.

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Operator [38]

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The last question will be presented by (interpreted) Korea Investment Securities.

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Unidentified Participant [39]

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(interpreted) So I also have two questions, now first as just was explained earlier, but then I will like to ask for more details. So, I see that the loss ratio is improving, but then the expense ratio is also going up, and because of the overall impact on the combined ratio is minimal, so can you explain a bit more about the expense ratio why this is going up?

And the next is about the CM and auto for this what is your expected -- so what is the loss ratio and expense ratio on the online channels for auto products and what is your target market share?

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Unidentified Company Representative [40]

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(interpreted) So, I am from the management support division and I will take your first question.

Now for 2017, there is a pick up in the direct marketing advertising cost and also some other commissions and fees, for example, charges for credit card usage and also because the Company keeps getting (inaudible) there is also the other (inaudible) expenses, so expenses that are linked to our revenues, so for examples taxes and other duties.

And for information, the G&A for 2017 is expected to increase by 11.5% year-on-year and particularly for the CM cost, it's going to be higher by 15.5% from 2016.

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Lee Cheon Hu, Hyundai Marine & Fire Insurance Co Ltd - SVP of Automobile Insurance Division [41]

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(interpreted) Now I will take your second question, I am from the Auto Insurance Division, now in 2016, the CS channel's revenue was KRW92.4 billion and the combined ratio was 100%, so actually there was underwriting loss, but then this is because in the initial stage, the earned premium is low and as a result the expense ratio is higher.

And for 2017, the direct premium written for CN will increase by 110% and planned at 194 billion and the earned premium would increase, which would drive down the expense ratio, so we believe that in 2017, the loss ratio for CN channel would be nearing the breakeven point.

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Unidentified Company Representative [42]

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(interpreted) Now because of the time, we will conclude the 2016 earnings conference.

So, I will like to once again thank all of the shareholders and analysts for your time. Thank you.

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Editor [43]

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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.