1

Samsung Life Insurance (032830.KS) BUY / TP KRW125,000

Banks/Insurance Jin Sang Kim Tae Joon Jeong, CFA

+822-3787-2435 +822-3787-2474

jskim@hmcib.com tjjeong@hmcib.com

4Q18 misses but new business value solid Share price (KRW, Feb 21)

Upside (%)

91,400

36.8

Market cap (KRW bn)

Shares outstanding (’000)

Paid-in capital (KRW bn)/ Face value (KRW )

18,280

200,000

100/500

52-week high/low (KRW) 128,000/80,300

60-day avg. daily T/O (KRW bn) 23

Foreign ownership (%)

Major shareholders (%)

16.68

Lee Kunhee and 7 others

47.03

Price performance

Absolute (%)

Relative (%p)

1M

7.0

2.0

3M

1.6

-5.4

6M

-1.9

-0.1

K-IFRS, consolidated

(KRW) 18F EPS 19F EPS TP

Previous 9,556 7,220 137,000

Revised 8,322 6,911 125,000

Consensus ,994 6,857 109,571

Difference -16.7% 0.8% 14.1%

12-month price performance

0

20

40

60

80

100

120

18.02 18.05 18.08 18.11 19.02

Samsung Life InsuranceKOSPI

Source: WiseFn, Hyundai Motor Securities

Earnings forecasts and valuations

Direct premium

Operating profit

Consolidated net profit

Growth BPS EPS P/B P/E ROAE ROAA Div. yield

(KRW bn) (KRW bn) (KRW bn) (%YoY) (KRW) (KRW) (x) (x) (%) (%) (%)

2016 17,046 1,236 2,054 69.6 148,374 10,271 0.62 8.9 7.3 0.75 1.3

2017 16,947 332 1,195 -41.8 163,727 5,976 0.56 15.3 4.1 0.42 2.2

2018F 16,475 933 1,664 39.3 160,947 8,322 0.57 11.0 5.7 0.56 2.9

2019F 15,044 571 1,382 -17.0 161,448 6,911 0.57 13.2 4.8 0.45 3.1

2020F 14,805 679 1,459 5.6 162,367 7,297 0.56 12.5 5.0 0.45 2.6

Note: K-IFRS, consolidated

1) Investment highlights - Samsung Life Insurance posted a consolidated net loss of KRW61.2bn for 4Q18, far below the consensus net

profit estimate of KRW243.1bn. The lower-than-expected number is the result of an after-tax impairment loss of KRW336bn associated with its stakes in Samsung Securities (016360.KS, BUY) and Samsung Card (029780.KS, BUY). Without the loss, net income would have come to KRW275bn.

- The 2018 DPS is set at KRW2,650, as the company has decided to use the proceeds from the sale of its Samsung Electronics (005930.KS, BUY) stake (KRW790bn after tax) to pay out dividends over a two-year period.

- The value of new business rose 26% YoY, led by a 4.4%p YoY increase in the new business margin. New business APE also climbed 13% on an increase in protection-type APE.

- The loss ratio in the quarter rose by 10.9%p to 82.6% on: 1) an increase in the number of business days (+5 days YoY); 2) an increase in claims paid; and 3) an additional IBNR provision. Underwriting profit for 2018 fell 15% YoY due to a higher loss ratio and greater-than-expected acquisition cost amortization.

- Net investment income climbed 12% YoY led by a higher investment yield (+0.2%p YoY) and an increase in AUM (+3.3% YoY). The yield on newly made investments is 3.5%, close to the annual average. The interest spread expanded by 13bps to -87bps. Policy reserve provisions edged down 0.2% YoY.

- We trim our RoEV forecast in light of weak underwriting profit and macro uncertainties. Accordingly, we cut our target price to KRW125,000 while keeping the rating unchanged at BUY.

2) Major issues and earnings outlook - 2018 EV fell 16% YoY to KRW32.5tn due to a change in: 1) economic assumptions (-KRW6.5tn); and 2)

actuarial assumptions (-450bn). Management guides for a 2019 EV of KRW35tn (+7.7% YoY). - 2019 DPS is expected to be KRW660 higher than the normal level as the gain from the Samsung Electronics

share disposal set aside as a dividend source has been carried forward from last year. Management plans to raise the dividend propensity gradually over the next three years, to represent 50% of recurring profit eventually.

- The RBC ratio remains top of class at over 300%, despite the weakness of Samsung Electronics shares.

3) Share price outlook and valuation - Our target price is based on a 2019F EVPS and target P/EV of 0.73x (COE 9.5%, sustainable RoEV 7.0%).

Company Note February 22, 2019

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COMPANY NOTE

Fig 1. Earnings preview (KRW bn) 4Q17 1Q18 2Q18 3Q18 4Q18P % YoY % QoQ

Underwriting net revenue -221 -384 -61 -301 -469 N/A N/A

Underwriting revenue 4,080 4,103 4,094 4,110 4,169 2.2 1.4

Underwriting expense 4,301 4,487 4,154 4,411 4,637 7.8 5.1

Net investment income 1,564 1,981 3,027 1,837 1,749 11.8 -4.8

Increase in insurance reserve 1,713 1,394 1,818 1,521 1,715 0.2 12.8

Operating profit -370 203 1,149 15 -435 17.6 N/A

Non-operating profit 336 359 309 387 378 12.3 -2.4

Pre-tax profit -33 562 1,458 402 -57 N/A N/A

Net profit -51 416 1,074 298 -54 N/A N/A

Cons. net profit -72 390 1,056 280 -61 N/A N/A

APE trends by product 0 0 0 0 0 - -

Total APE 536 700 658 683 608 13.5 -10.9

Protection type 345 440 430 459 413 19.8 -9.9

Annuities type 94 116 94 113 107 13.9 -5.4

Savings type 98 143 134 111 88 -9.5 -20.8

Key indicators (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net investment yield 2.7 3.5 5.3 3.2 3.0 0.2 -0.2

Investment spread (bps) -74 -78 -79 -86 -88 -13 -2

Yield on interest-bearings assets 3.7 3.7 3.6 3.6 3.6 -0.1 0.0

Cost on insurance liabilities 4.4 4.4 4.4 4.4 4.4 0.0 0.0

Expense ratio 8.2 7.8 7.1 7.0 8.2 0.0 1.2

Risk loss ratio 71.7 84.1 80.1 81.7 82.6 10.9 0.8

RBC ratio 318 304 307 317 314 -3.9 -3.1 Source: Hyundai Motor Securities.

Fig 2. Protection-type premiums and growth Fig 3. Protection-type premiums as % of total premiums

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1Q04 3Q05 1Q07 3Q08 1Q10 3Q11 1Q13 3Q14 1Q16 3Q17

Protection premium Growth (YoY)(KRW bn)

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

1Q02 3Q03 1Q05 3Q06 1Q08 3Q09 1Q11 3Q12 1Q14 3Q15 1Q17 3Q18 Source: Company data, Hyundai Motor Securities Source: Company data, Hyundai Motor Securities

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Kim Jin-sang +822-3787-2435 / jskim@hmcib.com

Jeong Tae-joon +822-3787-2474 / tjjeong@hmcib.com Banks/Insurance

Fig 4. Quarterly APE trend Fig 5. Risk loss ratio and expense ratio

-60%

-40%

-20%

0%

20%

40%

60%

80%

0

500

1,000

1,500

2,000

2,500

2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18

SavingsAnnuitiesProtectionTotal APE growth (YoY)

(KRW bn)

0%

5%

10%

15%

20%

25%

30%

65%

70%

75%

80%

85%

90%

95%

2Q114Q112Q12 4Q12 2Q134Q132Q144Q14 2Q154Q152Q164Q16 2Q17 4Q172Q184Q18

Risk loss ratio (LHS)

Expense ratio (RHS)

Source: Company data, Hyundai Motor Securities Source: Company data, Hyundai Motor Securities

Fig 6. Quarterly investment spread Fig 7. Quarterly investment assets and yield

-1.5%-1.0%

-0.5%0.0%

0.5%1.0%

1.5%2.0%

2.5%3.0%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

2Q11

4Q11

2Q12

4Q12

2Q13

4Q13

2Q14

4Q14

2Q15

4Q15

2Q16

4Q16

2Q17

4Q17

2Q18

4Q18

Negative spread (RHS)Average interest on interest-earning assets (LHS)Average reserve interest rate (LHS)

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

50

100

150

200

250

1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18

Investment assets (LHS)

Investment yield (RHS)

(KRW tn)

Source: Company data, Hyundai Motor Securities Source: Company data, Hyundai Motor Securities

Fig 8. Quarterly net income and RBC ratio Fig 9. ROE vs. P/B

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

-200

0

200

400

600

800

1,000

1,200

1,400

2Q11 2Q12 2Q13 2Q14 2Q15 2Q16 2Q17 2Q18

Net income (LHS) RBC ratio (RHS)(KRW bn)

0%

1%

2%

3%

4%

5%

6%

7%

8%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

11.05 12.05 13.05 14.05 15.05 16.05 17.05 18.05

Samsung Life 12m fwd P/B Samsung Life ROE(P/B, x) (ROE)

Source: Company data, Hyundai Motor Securities Source: Company data, Hyundai Motor Securities

4

COMPANY NOTE

Fig 10. Valuation

Target price

Current price 91,400

2019F EVPS 170,198

Target P/EV* 0.73

Target price 125,000

Upside 36.8

Key valuation parameters

Sustainable RoEV 7.0

COE 9.5

Beta 1.1

Risk free rate 3.0

Risk premium 6.0

Terminal growth 0.0

Note: * P/EV multiple = (sust. RoEV-g)/(COE-g) Source: Hyundai Motor Securities

5

Kim Jin-sang +822-3787-2435 / jskim@hmcib.com

Jeong Tae-joon +822-3787-2474 / tjjeong@hmcib.com Banks/Insurance

Income statement Balance sheet

(KRW bn) CY16 CY17 CY18F CY19F CY20F (KRW bn) CY16 CY17 CY18F CY19F CY20F Underwriting net revenue 2,476 966 -1,214 -770 -505 Investment assets 214,879 228,698 236,195 245,310 253,828 Underwriting revenue 17,046 16,947 16,475 15,044 14,805 Cash & equivalents 5,823 4,944 4,745 4,849 4,954 Underwriting expense 14,570 15,982 17,689 15,815 15,311 Equities 24,584 33,020 24,998 25,502 26,016 Net investment income 8,001 6,976 8,595 7,688 7,837 Bonds 113,321 112,943 121,712 127,660 132,844 Increase in insurance reserve 9,242 7,610 6,448 6,347 6,653 Loans 58,063 64,577 70,190 73,040 76,006 Operating profit 1,236 332 933 571 679 Real estate 8,923 8,414 8,584 8,757 8,933 Non-operating profit 1,372 1,383 1,433 1,434 1,435 Others 4,166 4,799 5,966 5,503 5,076 Pretax profit 2,607 1,715 2,366 2,005 2,114 Non-earnings assets 8,269 8,734 7,298 7,330 7,499 Income tax 458 423 632 551 581 Separate account

asset 41,505 45,321 45,934 49,720 53,819

Net profit

2,150 1,293 1,734 1,454 1,533 Total assets 264,654 282,753 289,428 302,360 315,146 Minority interest 96 97 69 71 74 Insurance reserve 158,729 166,881 173,943 180,290 186,943 Cons. net profit

2,054 1,195 1,664 1,382 1,459 Policyholders equity adj.

8,076 9,600 8,209 8,374 8,543 Growth Separate account liab. 43,857 47,180 46,977 48,884 50,869 Underwriting net revenue -29.2% -61.0% N/A N/A N/A Other liabilities 25,683 27,928 29,794 34,201 37,998 Net investment income 24.5% -12.8% 23.2% -10.6% 1.9% Total liabilities 236,345 251,588 258,922 271,749 284,353 Increase in insurance reserve -6.3% -17.7% -15.3% -1.6% 4.8% Paid-in capital 100 100 100 100 100 Operating profit 1917.8% -73.1% 180.7% -38.8% 18.9% Capital surplus 63 63 125 125 125 Cons. net profit

69.6% -41.8% 39.3% -17.0% 5.6% Retained earnings 13,289 14,268 15,548 16,400 17,289

Products Capital adjustment -2,118 -2,117 -2,117 -2,117 -2,117 CY16 CY17 CY18F CY19F CY20F AOCI 15,310 17,087 15,246 14,484 13,760 Premium breakdown Minority interest 1,664 1,763 1,603 1,619 1,636 Protection type 37.8% 40.4% 43.7% 46.5% 47.0% Shareholders’ equity 28,308 31,164 30,505 30,611 30,793 Savings type 21.1% 21.9% 23.3% 24.3% 24.1% Growth Annuity type 33.7% 31.0% 27.9% 29.2% 28.9% Investment assets 17.4% 6.4% 3.3% 3.9% 3.5% Premium growth Total assets 14.9% 6.8% 2.4% 4.5% 4.2% Protection type 6.3% 1.3% 0.0% -1.1% -0.8% Insurance reserve 6.4% 5.1% 4.2% 3.6% 3.7% Savings type -14.2% -1.7% -1.8% -3.2% -2.6% Shareholders’ equity 19.3% 10.1% -2.1% 0.3% 0.6% Annuity type 10.3% -12.6% -16.8% -2.8% -2.7% AUM breakdown

CY16 CY17 CY18F CY19F CY20F APE breakdown Cash & equivalents 3% 2% 2% 2% 2% Protection type 65.6% 56.1% 65.8% 68.8% 71.5% Equities 11% 14% 11% 10% 10% Annuity type 17.4% 20.4% 18.0% 16.1% 14.5% Bonds 53% 49% 52% 52% 52% Savings type 17.0% 23.6% 16.2% 15.1% 14.0% Loans 27% 28% 30% 30% 30% APE growth by product Real estate 4% 4% 4% 4% 4% Total APE growth -9.7% -13.8% -4.5% 1.4% 0.2% Others 2% 2% 3% 2% 2% Protection type -4.9% -26.3% 12.0% 6.0% 4.2% Key indicators-2

Annuity type 46.4% 0.8% -15.5% -9.1% -10.3% CY16 CY17 CY18F CY19F CY20F Savings type -43.1% 19.5% -34.2% -5.6% -7.1% BPS (tang.) 148,374 163,727 160,947 161,448 162,367

Key indicators-1 EPS 10,271 5,976 8,322 6,911 7,297 CY16 CY17 CY18F CY19F CY20F DPS 1,200 2,000 2,650 2,850 2,400 Net investment yield 4.0% 3.1% 3.7% 3.2% 3.1% Valuation Investment spread -0.69% -0.74% -0.87% -0.80% -0.78% P/B 0.62 0.56 0.57 0.57 0.56 Yield on interest bearings assets

3.9% 3.7% 3.6% 3.6% 3.6% P/E 8.90 15.29 10.98 13.23 12.53 Cost on insurance liabilities 4.6% 4.5% 4.4% 4.4% 4.3% P/EV 0.64 0.48 0.57 0.54 0.50 Expense ratio** 6.9% 7.9% 10.6% 11.8% 12.6% Div. yield 1.3% 2.2% 2.9% 3.1% 2.6% Risk loss ratio 82.1% 78.5% 82.1% 79.6% 78.1% ROAA 0.75% 0.42% 0.56% 0.45% 0.45% RBC ratio 302% 318% 314% 309% 306% ROAE 7.3% 4.1% 5.7% 4.8% 5.0%

Note: K-IFRS, consolidated; **based on management expense, may differ from the company data

6

COMPANY NOTE

Investment rating and target price history Two-year price chart

Date Rating TP Difference (%)

0

20

40

60

80

100

120

140

160

180

(KRW '000)

Samsung Life Insurance Target price

Average High/Low

17/05/15 BUY 144,000 -15.9 -10.8 17/08/11 BUY 148,000 -18.0 -7.1 17/11/10 BUY 157,000 -19.4 -14.0 18/02/23 BUY 157,000 -22.1 -14.0 18/05/14 BUY 157,000 -22.9 -14.0 18/06/01 BUY 157,000 -23.9 -14.0 18/06/22 BUY 157,000 -26.7 -14.0 18/08/13 BUY 150,000 -38.4 -35.1 18/11/09 BUY 137,000 -36.7 -32.0 19/02/22 BUY 125,000 - -

Compliance note • The author(s) of this report does(do) not have any interests in the company(ies) covered herein. • Hyundai Motor Securities has not disclosed the material contained in this report to any institutional investor or third party prior to its publication. • The author(s) of this report does(do) not own more than 1% of the shares of the company(ies) covered in this report. • Hyundai Motor Securities has not taken part in securities issuance (DR, CB, IPO, and market making of the company(ies) covered in this report as lead manager for

the past six months. • This report accurately reflects the author(s)’s professional views and was written without any undue external influence or interference.

Investment rating Hyundai Motor Securities offers three sector investment ratings based on six-month forward fundamentals and share price outlook.

• OVERWEIGHT: Sector-wide fundamentals and share prices are expected to turn up. • NEUTRAL: No meaningful fundamental improvement is expected. • UNDERWEIGHT: Sector-wide fundamentals and share prices are expected to turn down.

Hyundai Motor Securities offers three company investment ratings based on the relative return expected in the following six months, based on the closing price on the date of rating declaration.

• BUY: Excess return of +15%p or more • MARKETPERFORM (M.PERFORM): Excess return of between -15%p and +15%p • SELL: Excess return of -15%p or less

Stock ratings distribution (January 1-December 31, 2018)

Rating Count % of rating category BUY

MARKETPERFORM SELL

147 12 0

92.45 7.55 0.0

• This report has been prepared for informational purposes only and thus may not be reproduced or distributed without the prior written consent of Hyundai Motor Securities. • The information and statistical data contained herein were taken from sources believed to be reliable but in no way can be guaranteed and, therefore, final investment decisions should be

made based on each client’s own judgment. • This report cannot be used as evidence in any legal disputes related to the client’s investment decisions.