U.S. Markets close in 3 hrs 30 mins

Edited Transcript of 088350.KS earnings conference call or presentation 8-Aug-19 5:00am GMT

Q2 2019 Hanwha Life Insurance Co Ltd Earnings Call

Seoul Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Hanwha Life Insurance Co Ltd earnings conference call or presentation Thursday, August 8, 2019 at 5:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Han Young-Man

* Sang-Wook Choi

* Yong-Ho Jung

Hanwha Life Insurance Co., Ltd. - MD & Head of Risk Management

================================================================================

Conference Call Participants

================================================================================

* 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

* Seung-Gun Kang

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

* Sinyoung Park

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Yong Hoon Sung

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(foreign language) Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the first half of the fiscal year 2019 earnings results by Hanwha Life Insurance. This conference will start with the presentation followed by a divisional Q&A session. (Operator Instructions)

Now we shall commence the presentation on the first half of the fiscal year 2019 earnings results by Hanwha Life Insurance.

--------------------------------------------------------------------------------

Sang-Wook Choi, [2]

--------------------------------------------------------------------------------

[Interpreted] Good afternoon. I am Sang-Wook Choi, IR part leader at Hanwha Life Insurance. We would like to begin the conference call for the first half of 2019. Consecutive interpretation in Korean and English is provided, and the presentation material is available on our IR website.

Today, [Kyeong Gun Lee], CFO of Hanwha Life Insurance will give a presentation which will be followed by a Q&A session. Now Mr. Lee will start the report.

--------------------------------------------------------------------------------

Unidentified Company Representative, [3]

--------------------------------------------------------------------------------

[Interpreted] Good afternoon. I am [Kyeong Gun Lee], CFO of Hanwha Life. First, I'd like to note that the presentation was prepared solely for the convenience of the investors in accordance with the separate financial statements under the K-IFRS. And some numbers are subject to change after a full financial audit. Now I'd like to begin my presentation.

Page 1 is key financials. The growth in protection APE and other protection APE contributed to the overall APE growth in the first half of 2019. In particular, other protection APE recorded a 243% growth year-on-year, thanks to the increased sales of other protection products such as dementia insurance. As a result, the new business margin improved 6.3 percentage points to mark 40%. The crediting rate has been improving, and the RBC ratio remained stable at 219.6%. The net income recorded a year-on-year decline on the back of the low interest rate trend and greater financial market volatility.

Page 2 is on premium income and net income. The premium income in the first half of 2019 fell 6.8% year-on-year due to the drop in retirement insurance sales. However, the proportion of protection-type income increased 4 percentage points year-on-year to 54% of the total premium income. Meanwhile, the net income fell 62% year-on-year mainly due to one-off impairment losses and loan loss provisions. Hanwha Life will do its best to generate core insurance profit and improve earnings through flexible asset management in the given market situation.

Page 3 is on APE. The total APE grew 15.8% year-on-year, and the share protection APE recorded 64%. As a result, the new business margin improved 6.3 percentage points to post 40%. In particular, other protection APE grew significantly by 243% year-on-year on the back of higher sales of dementia insurance and special bundle whole life insurance. We will continue to pursue new business margin improvement by building a profitable portfolio focused on higher-margin protection products, and launching various other protection products to cater to the changing market need.

On Page 4, the APE breakdown by channel shows that the FP channel accounts for 59%; GA channel, 14%; and bancassurance, 25%. While we continue to focus on the FP channel as a primary distribution channel, we will utilize the growing GA and bancassurance channels in a flexible manner. The protection-type products accounted for 75% of the sales from the GA channel. We plan to further increase the portion of protection-type sales in the GA channel by developing protection-type products tailored for the GA and providing more support for high-performing agents.

Page 5 is on the loss ratio and expense ratio. In the first half of 2019, the loss ratio was up 3.2 percentage points year-on-year, mainly due to the increase in indemnity claims. Hanwha Life will make efforts to improve the loss ratio by strengthening the underwriting process and increasing the sale of protection products. The expense ratio was up 3.1 percentage points year-on-year because of temporary increase in the sales costs associated with the growth in other protection-type products. We will manage the expense ratio for the whole year to be under 15% through efficient expense management.

Page 6 is on the persistency ratio and the retention ratio. The 13th month and the 25th month ratios went up 0.8 percentage points and 2.4 percentage points, respectively, as a result of our efforts to manage new customers and closely monitor policyholders that have the risk of early cancellation. As a leading indicator of persistency, the FP retention ratio has improved since 2018 to mark 48.8%. The improvement in the operational efficiency are the results of the CPC 2.0 initiatives launched in December 2018. We will continue to strive for efficiency by improving the management process with the entire customer journey.

Page 7 is on investment. In the first half of 2019, investment yield was down to 3.30% due to loan loss provisioning and equity impairment losses. The investment portfolio mainly consists of interest-bearing assets with 41% domestic bonds, 29% overseas securities and 23% loan assets in an attempt to respond to stricter regulation. In addition, we have been increasing the share of euro-denominated bonds to reduce the FX hedging costs.

Page 8 is on the bond and loan portfolio. In the bond portfolio, 95% of the domestic bonds are rated AAA or higher, and 95% of the overseas bonds are rated A or higher, which shows the quality of our bond portfolio. Our loan portfolio is also well balanced consisting of 43% corporate loans, 30%, policy loans and 27% retail loans.

Page 9 is on the premium reserves and solvency. The crediting rate posted 4.58%, thanks to the maturing of legacy policies and increased portion of floating rate products. The duration gap increased year-on-year, but we will continue to manage the duration gap by investing more in domestic and overseas long-term fixed income assets. Lastly, our RBC ratio remained stable at 219.6% mainly on the back of bond evaluation gains with lower interest rates.

Dear investors, Hanwha Life and the entire life insurance industry indeed are going through a challenging period due to the domestic economic slowdown, demographic changes and low interest rate. Hanwha Life will strive to turn today's crisis into an opportunity to strengthen our competitiveness and build the foundation for substantial longer-term growth.

With that, I would like to end my presentation. Thank you so much for your time and attention.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(foreign language) (Operator Instructions) (foreign language) The first question will be provided by Seung-Gun Kang from HI Investment & Securities.

--------------------------------------------------------------------------------

Seung-Gun Kang, HI Investment & Securities Co., Ltd., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

[Interpreted] I am Kang Seung-Gun from HI Investment & Securities. I have 2 questions. So the first question is that, currently, the long-term bonds rates have been folding dramatically, and it may be necessary for you to consider the adjustment of the expected rate. So do you have any plans to change the expected rate? And if you do have such plan, when do you think you will change that?

The second question is related to the LAT result. And given the current low interest rate environment, what's the surplus amount as a result of LAT in June? And given the expected regulatory changes and the interest rate environment, what is your estimate for LAT result at the end of this year?

--------------------------------------------------------------------------------

Unidentified Company Representative, [3]

--------------------------------------------------------------------------------

[Interpreted] I am [Seung-Hyun Ho] from the product development team. As you pointed out, the current interest rate have been falling quite substantially, so we feel the need to lower the assumed rate as well. And as for the timing of that, we are making preparations to be able to do it as soon as possible. However, lowering the expected rates means that it will have an impact on our invest -- our competitiveness. Therefore, we have to also observe what the industry as a whole is going to do. And -- but all in all, to answer your question, while we are monitoring the market situation, we will plan -- we are planning to lower the expected rate as soon as we can.

--------------------------------------------------------------------------------

Yong-Ho Jung, Hanwha Life Insurance Co., Ltd. - MD & Head of Risk Management [4]

--------------------------------------------------------------------------------

[Interpreted] I am Jung Yong-Ho from the risk management team. Let me answer your second question. As for the surplus amount of LAT at the end of June 2019, well, when you look at the figure by the end of last year, it was KRW 1.2 trillion. And for this time, the amount is a little lower than that figure. We have not made the official disclosure yet, and we will make that disclosure later next week through the FSS website and the -- our homepage, so you will be able to check the number by the end of next week.

And as for your question regarding the estimates of LAT numbers for the entire year, it is not something that we can disclose right now because interest rates are going down and the LAT road map has originally been designed for it to be stronger by the end of 2021. However, after that the announcement was made that IFRS 17 will be introduced not in 2021 but 2022. And as a result of these changes, the government is currently in the process of adjusting the road map and also trying to find a way to restrict lower interest rate in the entire process. So given these situations, we cannot disclose the specific figure or estimates, but by the end of September or October, we will be able to have a clearer idea as to the LAT methodology, then we'll be able to discuss estimates.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Byung Gun Lee, DB Financial Investment Co., Ltd., Research Division - Team Leader [6]

--------------------------------------------------------------------------------

[Interpreted] I am Lee Byung Gun from DB Financial Investment. I have 2 questions. The first question is that according to your presentation, the new business margin is 40%, and I like to know what was your investment yield assumptions in calculating the figure, especially investment yield assumptions for the first half of last year, the second half of last year and the first half of this year. And also I'd like to know what is the new money yields excluding the yields coming from the policy loans.

The second question is related to the bond valuation gains because with the postponement of the introduction of K-ICS, the Financial Services Commission has hinted that they may possibly change the way the bond valuation gains or losses would be reflected in the solvency numbers. Currently, you are holding about KRW 33 trillion of bonds which are to be held until maturity. And is there any possibility for you to reclassify them as bonds available for sale? And if you do so then what will be the valuation gains as of the end of June and as of today?

--------------------------------------------------------------------------------

Yong-Ho Jung, Hanwha Life Insurance Co., Ltd. - MD & Head of Risk Management [7]

--------------------------------------------------------------------------------

[Interpreted] I am Jung Yong-Ho from the risk management team. Let me answer your first question. In calculating the new business margin, the investment yield assumption that we use for last year, the first half of last year was 3.65%. And for the first half of this year, it was 3.35%. But I'd like to also remind you that majority of the new these policies that were underwritten are floating rate products, therefore, there is lower level of sensitivity to investment yield.

--------------------------------------------------------------------------------

Unidentified Company Representative, [8]

--------------------------------------------------------------------------------

[Interpreted] I am [Kyu-Ha Cho] from the investment team. You asked a question about new money yields excluding policy loans. It's something that we will have to communicate to you later. But if you refer to the presentation and the numbers we disclosed, you can see that the new money yields for the second quarter including the policy loans was 4.5%.

--------------------------------------------------------------------------------

Unidentified Company Representative, [9]

--------------------------------------------------------------------------------

[Interpreted] I am from the financial planning team. Let me answer your second question regarding bond valuation gains and the possibility for reclassification. As for the option of reclassifying bonds held to maturity to bond available for sale, we're constantly considering this option, however, we have not made the decision yet. We will continue to review this possibility by the end of this year. As for your second part of the question, currently, we have about KRW 34 trillion of bonds held to maturity, and the valuation gains as of the end of June was about KRW 2 trillion. However, as of yesterday, the valuation gains from -- for bond held to maturity is KRW 3.1 trillion.

--------------------------------------------------------------------------------

Unidentified Company Representative, [10]

--------------------------------------------------------------------------------

[Interpreted] I am [Jung-Cha Lo] from IR part. I will provide you with the information later.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

(foreign language) The next question will be presented by Jin-Sang Kim from Hyundai Motor Securities.

--------------------------------------------------------------------------------

Jin-Sang Kim, HMC Investment Securities Co., Ltd., Research Division - Analyst [12]

--------------------------------------------------------------------------------

[Interpreted] I am Kim Jin-Sang from HM Securities. I have 2 questions. First of all, you mentioned in explaining about your investment yield that there was some one-off loan loss provisioning and also some valuation losses from the equity side. And excluding these one-off factors, what is the normal investment yield excluding these one-off factors? And in addition to these one-off factors in terms of investment, were there any other one-off factors or some sort of temporary factors that impacted your earnings?

The second question is related to the expense ratio. There has been some increase in expense ratio. Of course, I understand that the APE growth was much better than expected. Do you think this increasing trend for expense ratio to be continuing for some time, or is it something temporary? And regarding this, I'd like to know what is your projections for the expense ratio and the loss ratio for the second half of this year. And recently, the government announced that they may introduce a policy to rationalize promotion fees and commissions for these agents. Do you think it will have impact on Hanwha Life? And what is your response to this potential policy?

--------------------------------------------------------------------------------

Unidentified Company Representative, [13]

--------------------------------------------------------------------------------

[Interpreted] I am [Kyu-Ha Cho] from the investment team. As for our investment yields, and you asked about any one-off issues that we're expecting in the second half of this year. Well, as for the first half of this year, the investment yield was, as announced, 3.3%. However, there were all these one-off issues. And excluding them, the investment yield would be 3.8%. And in the second half of this year, we do not expect any major losses coming from valuation or the dLife issues. So considering that, we believe that investment yield for the second half will be better than the first half.

--------------------------------------------------------------------------------

Unidentified Company Representative, [14]

--------------------------------------------------------------------------------

[Interpreted] I am [Nam-Gun Yo] from financial planning team. Let me answer your question regarding the expense ratio trend for the second half of this year. In the first half of this year, the new business growth, especially the APE growth, was 15.8%. As a result, it lead to KRW 100 billion of direct sales costs. That was the main driver behind increasing expense ratio.

However, for the entire year, we will continue to make efficiency improvement in the expense management so that we can have the expense ratio to be under 15%. In particular, we're going to improve and reduce the salaries and administrative costs and other sales-related promotion cost by more than 10% so that we can have the expense ratio to go down to our target.

--------------------------------------------------------------------------------

Unidentified Company Representative, [15]

--------------------------------------------------------------------------------

[Interpreted] I am [Sang Wook] from the CPC planning team. Let me answer your question regarding the government's policy to rationalize promotion fee and commission. There was the announcement by the Financial Services Commission to improve the situations in this regard. In particular, this policy aims at improving the transparency of the commissions and fee structures and to limit or seal the initial bond commission to be lower than 1,200%.

I believe that this new policy will have substantial impact on the high-performing GAs as well as the P&C companies rather than the life insurance companies. In particular, we already had the limit of 1,000% for the initial year of commission structure. And going forward, with this policy to be introduced, there will be fairer competition in the GA channel which will have a benefit for companies like us where we have the stable -- the tied agent FP channel.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Myung Wook Kim, JP Morgan Chase & Co, Research Division - VP [17]

--------------------------------------------------------------------------------

[Interpreted] I am Kim Myung Wook from JPMorgan. I have 3 questions. The first question is related to LAT. As you already mentioned in your previous answer, by the -- by September or October, there will be clearer guidance or direction as to the LAT approach, and you will be able to communicate your LAT estimates for the entire year, later this year.

However, when you look at the LAT methodology and the major assumptions, a big part of course relates to the regulations and the other part is related to the discount rate. And in particular, inside there is this major portion related to interest rates. But as you know, the interest rates are extremely low right now. So if we assume that the current interest rates remain by the end of this year, what is your contingency plan regarding LAT?

The second question is that it is really nice that your legacy policies with high fixed rates are maturing, so the percentage of fixed rate portion is declining while the portion of floating rate products is increasing. That is good news. However, when you even look at the floating rate products, there is something called minimum guarantee. But because the market rates are so low, you may have to have some approach as to treating these reserves for these policies. So when you are breaking down your policy reserves, how do you treat these portion of minimum guarantees which may be higher than the current market rates?

The third question is regarding products. Your new business margin is about 40%, which is very high. But when you look at the driver, it is mainly driven by the sales of dementia insurance and other comprehensive protection products. So do you think these products are moving in the direction that you expected for this year? Or what is your projection for the trend going forward?

--------------------------------------------------------------------------------

Yong-Ho Jung, Hanwha Life Insurance Co., Ltd. - MD & Head of Risk Management [18]

--------------------------------------------------------------------------------

[Interpreted] I'm Jung Yong-Ho from the risk management team. Let me answer your question regarding LAT. As I mentioned previously, there are discussions underway regarding regulatory and policy changes because of the announcement of postponing the IFRS 17 from '21 to '22. And as a result, the LAT road map will have to be revised. And there is this QIS underway for K-ICS as well. And in this process, there are discussions on revising the discount rates and also the road map revision. So overall, the roadmap will be revised and the discount rates will be adjusted, and all these things are going on right now.

But when we reflect on the LAT surplus coming from new business as we sell our interest products each year, the amount of LAT surplus from new business is about KRW 2 trillion to KRW 2.5 trillion. So given that situation, we believe that by the end of this year, we will end up with a surplus for LAT.

--------------------------------------------------------------------------------

Unidentified Company Representative, [19]

--------------------------------------------------------------------------------

[Interpreted] Your second question regarding the minimum guarantee rate for floating rate products and their exposure, we would like to communicate to you through the IR team later with specific statistics.

--------------------------------------------------------------------------------

Yong-Ho Jung, Hanwha Life Insurance Co., Ltd. - MD & Head of Risk Management [20]

--------------------------------------------------------------------------------

[Interpreted] I'm once again Jung Yong-Ho from the risk management team. Let me answer your third question as well. You asked the question about the movement of new business. And last year, it -- the new business margin was 33.7%, but it has improved by about 4 percentage points -- 6 percentage points to 40%. It is mainly thanks to the increase in the overall APE growth, which was about KRW 46 billion.

And when you look at the value of new business in particular, last year in the first half of 2018, it was KRW 290 billion. But this year, in the first half of this year, it's KRW 398.9 billion. So there was a big increase of about KRW 100 billion. And as I mentioned, the new business APE increased by KRW 46 billion, and the protection-type portfolio this year improved by KRW 33 billion. So overall, you can see that the percentage of other protection-type products in our entire portfolio has been increasing.

And you may wonder about our pricing strategy and whether this trend will continue going forward. When you look at the other protection-type products according to Solvency II and K-ICS standards, there is higher risk coefficiency for these type of products because of diagnosis and treatments-related risks. Therefore, we understand that there are a higher level of future uncertainties, and that is why we have been pricing in a strategic manner to secure enough margin coming from these products. So this is the strategy that we will continue to implement going forward so that we can secure enough margin coming from these new business sales.

--------------------------------------------------------------------------------

Unidentified Company Representative, [21]

--------------------------------------------------------------------------------

[Interpreted] I am [Jung-Cha Lo] from the IR team. We will get back to you as soon as we have the relevant materials ready.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yong Hoon Sung, Hanwha Investment & Securities Co., Ltd., Research Division - Analyst [23]

--------------------------------------------------------------------------------

[Interpreted] I am Sung Yong Hoon from Hanwha Investment & Securities. I have 2 questions. The first question is related to the asset management. In the second quarter of this year, there was a large amount of equity side valuation losses, and we expect some losses continuing for the third quarter. Indeed, investment yield in this case is much lower than the benchmark rate. So you may not be able to disclose specific stocks, per se, however, I'd like to know if you have turned all these provisions related to the equity side losses and -- or do you think there will be similar loss trend continuing for the third quarter? And given the very low interest rate environment, also the struggling stock market, you may need to increase the variable guarantee reserves by the end of this year. So if you plan to do so what is the amount of additional provisioning?

The second question is related to sales and administrative costs. As for mortality margin and investment margin, there's nothing much we may be able to do because of the given circumstances. However, you may need to increase efficiency in terms of expense management. You mentioned that your target has increased the expense margin by 25% year-on-year. So I'd like to know specific targets or specific goals or objectives when it comes to efficient expense management. And this year, there have been some one-off issues that impacted your earnings. But without such one-off issues next year, what is your projection for overall income and earnings?

--------------------------------------------------------------------------------

Unidentified Company Representative, [24]

--------------------------------------------------------------------------------

[Interpreted] I am from the investment team. Let me answer your question regarding the asset management, especially the losses coming from the equity portfolio and the projections going forward. Currently, our positions of holding individual stocks is less than 5%. Therefore, there's not much inherent risk in this regard because the majority of our equity holdings are mainly beneficiary certificate and the ETF product.

However, we have been recognizing some losses for the 3 consecutive quarters because of some of the stock provisions that we acquired in June or around June last year that have led to some losses that we had to recognize in our accounting due to the struggling stock market situation. But I can say that we have cleared pretty much the majority of the positions by June and July this year. And by the end of this year, our exposure would be reduced.

Currently, the domestic stock market is not doing very well, so it is not easy to predict the timing for replacement by the way. However, we will continue to monitor the market and do trading as necessary as possible. However, the good side is that we are doing pretty well in terms of overseas equity positions. And we have some of FXOpen positions in overseas securities and where we can get some capital gain from overseas equities. So we will implement various strategies including the selling of both overseas and some domestic equity stocks together or within the domestic market. So by having all these strategies in place, we will definitely reduce our position by the end of this year.

Interpreted When you look at the variable guarantee portion, the amount was about KRW 60 trillion in the first half of this year, so that was an increase of KRW 50 billion. However, as you may know, the interest rates are extremely low right now, and so for the entire year, we believe that the variable guarantee reserves are expected to go down. However, we will only know -- have a better idea by October when we will have definite figures for the beginning interest rates, which are relating to the June to September rates.

But overall, I believe that the entire year figure is going to be slow -- to be lower than the figure for the first half of this year. And of course, we have to continue to work hard to improve the yield coming from the variable guarantee accounts, and this is something that we will continue to do so.

--------------------------------------------------------------------------------

Unidentified Company Representative, [25]

--------------------------------------------------------------------------------

[Interpreted] I am [Nam-Gun Yo] from the financial planning team. You asked the question about expense management. We do not have any specific targets per se for efficiency and expense management. However, our overall goal for the expense margin is to have 10% growth on an annual basis going forward. And we have been increasing the sale of protection-type products. And as I mentioned, we expect the expense margin for this entire year to be about 25% higher than the year before.

And like I mentioned, we are going to work hard to meet the target of annual growth of 10%, or more than 10%, in terms of expense margin. And in order to achieve this target, we will enhance efficiency in terms of expenses including salaries, administrative costs and indirect sales costs including promotion. And in this aspect, we are trying to reduce costs in order to meet the 10% growth in expense margin target.

And you also asked a question about the projection for our insurance margin. We define the insurance margin as the margin -- expense margin plus mortality margin. And our insurance margin goal is KRW 800 billion minimum, and with the annual growth rate of 10%, so that we can reach the insurance income to be higher than KRW 1 trillion. So all in all, in short, I would say that our insurance margin capacity is KRW 800 billion or more. And in addition to that, there will be added investment margin which is vulnerable to market conditions.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

(foreign language) The next question will be provided by Sinyoung Park from Goldman Sachs.

--------------------------------------------------------------------------------

Sinyoung Park, Goldman Sachs Group Inc., Research Division - Equity Analyst [27]

--------------------------------------------------------------------------------

[Interpreted] I am Park Sinyoung from Goldman Sachs. I have 2 questions. The first question is, you mentioned that your core insurance process capability is about KRW 800 billion. So what was the figure for the second quarter this year? I would also like to know the investment yields coming from interest-bearing assets. I would also like to -- appreciate if you include these figures in your future presentation.

The second question is regarding capital adequacy. You issue the hybrid bonds, and also you have to bear the cost of KRW 92 billion per year for dividend payout. And right now, you have some weaknesses in your earnings potentials as interest rate have been falling dramatically, so it may be difficult for you to manage the capital adequacy in an organic manner. So what is your strategy to manage your capital adequacy?

--------------------------------------------------------------------------------

Unidentified Company Representative, [28]

--------------------------------------------------------------------------------

[Interpreted] I am [Nam-Gun Yo] from the financial planning team. Let me answer your first part of the question. In the second quarter, the expense margin -- expense profit was KRW 90 billion and the mortality profit was KRW 98 billion. So in total for the second quarter, it was KRW 190 billion. For the first half of this year, the expense profit was KRW 140 billion, the mortality gain was KRW 220 billion. So as a total, it was KRW 360 billion. And we see the trend of improving expense margin. So by the end of this year, we expect that the expense gains would be KRW 350 billion and the mortality gain of KRW 500 billion. So in total by the end of this year, it's going to be KRW 850 billion.

--------------------------------------------------------------------------------

Unidentified Company Representative, [29]

--------------------------------------------------------------------------------

[Interpreted] I am [Kyu-Ha Cho] from the investment team. You asked a question about yields coming from interest-bearing assets. In the second quarter, it was 3.5%, which is similar to the first quarter. On a year-over-year basis, there was a slight decline due to the falling market rates as well as the worsening of FX hedging costs. However, we have been maintaining the interest-bearing assets yield to be mid-3%.

--------------------------------------------------------------------------------

Han Young-Man, [30]

--------------------------------------------------------------------------------

[Interpreted] I am Han Young-Man from the finance team. Let me answer your question regarding hybrid bond issuances. And you also asked what's the crediting rate and how we're managing and investing this money. From 2017 until 2019, we issued hybrid bond for 3 times. The total amount of issuance was KRW 2 trillion. And you -- I'm sure you know the rates involved in these deals.

And when you -- when we look at the interest payment that we have to bear as well as the FX-related issues, I would say that the total cost on our side is KRW 96 billion per year, and we're trying to invest this money in consideration of the funding cost that we had to bear. So overall, the yearly investment income coming from this money is KRW 93 billion. So if you subtract KRW 93 billion from KRW 96 billion, the pure -- or the net cost will be KRW 3 billion for us.

--------------------------------------------------------------------------------

Unidentified Company Representative, [31]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Sinyoung Park, Goldman Sachs Group Inc., Research Division - Equity Analyst [32]

--------------------------------------------------------------------------------

[Interpreted] Let me ask a follow-up question. The reason why I asked about this hybrid bond issuances and your capital adequacy management is because, as for the payments that you bear on your side for dividend and interest payment, these are reflected in the retained earnings in a postponed manner, so it may not be easy for you to manage your capital adequacy in an organic manner. So what is your overall strategy in this regard?

--------------------------------------------------------------------------------

Unidentified Company Representative, [33]

--------------------------------------------------------------------------------

[Interpreted] The IR team will get back to you regarding this question after we prepare materials.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

(foreign language) Currently, there are no participants with questions. (Operator Instructions) (foreign language) Currently, there are no participants with questions. We will wait for a second until there is another question.

--------------------------------------------------------------------------------

Unidentified Company Representative, [35]

--------------------------------------------------------------------------------

[Interpreted] With no further questions, we would like to conclude the conference call for the first half of 2019 of Hanwha Life Insurance. I'd like to thank you all for your participation. If you have any further inquiries, please contact the IR team. Thank you.

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