Insurance Stocks Surge... Temporary Bounce or Recovery Trend?

[Asia Economy Reporter Koh Hyung-kwang] As the domestic stock market recently rebounded, the stock prices of insurance companies, which were considered to have been excessively oversold, are also recovering rapidly. While there is an analysis that insurance stocks are returning to their normal levels as the spread of the novel coronavirus infection (COVID-19) slows down, there are also opinions that this is only a temporary rebound due to the slow improvement in the industry, such as the prolonged low interest rate environment.

According to the Korea Exchange on the 23rd, the KRX Insurance Index, composed of 11 insurance stocks listed on the domestic stock market, closed at 971.12, up 0.3% from the previous trading day. It rose 52.9% compared to the lowest point recorded on the 19th of last month (635.54). During the same period, this significantly outperformed the KOSPI's increase rate of 30.1%.

Hanwha Life, which recently fell below 1,000 won and became a "penny stock," rose 92.7% from 895 won last month to 1,725 won yesterday. The recovery speed was so fast that there were four days in the past month when the stock price surged more than 10%, including the upper limit price on March 25. Samsung Life, the leading company in the insurance industry, also dropped to an all-time low of 31,900 won on the 19th of last month but quickly recovered to close at 47,350 won yesterday, marking a 48.4% increase over the month. The stock prices of Mirae Asset Life and Dongyang Life also rebounded 67.3% and 70.5%, respectively, compared to last month's low points.

In the case of Hanwha General Insurance, a non-life insurance company, the stock price fell to an all-time low of 965 won on the 19th of last month but then surged to 2,040 won yesterday, marking a 111.4% increase over the month. Other non-life insurers, Samsung Fire & Marine Insurance and DB Insurance, also rose 46.8% and 73.5%, respectively, during the same period, while Hyundai Marine & Fire Insurance, which had a relatively smaller decline, recorded a 37.5% increase in the past month.

As insurance stocks show signs of recovery, the securities industry interprets this as insurance stocks that had been heavily oversold returning to their proper levels. Although insurance stocks were severely hit by the COVID-19 crisis, the spread is gradually slowing, and there are signs of some improvement in loss ratios, leading stock prices to follow a recovery path. Jeong Tae-jun, a researcher at Yuanta Securities, explained, "With the expectation that the economy will gradually recover and the stock market stabilizing, the insurance stocks that had been heavily oversold are expected to benefit."

On the other hand, there are opinions that the rebound in insurance stocks is a temporary phenomenon due to excessive overselling. The prolonged low interest rate environment, rising loss ratios, and deepening negative margins make it difficult for the industry to improve, and there are no suitable factors to boost stock prices in the future. Kim Ji-young, a researcher at Kyobo Securities, said, "The continuous lowering of interest rates due to monetary easing and stimulus measures worldwide amid the COVID-19 crisis is the biggest factor hindering the improvement of insurance companies' profitability," adding, "Even though stock prices are showing signs of recovery recently, it will be difficult for investment sentiment toward insurance stocks to fully recover."

This content was produced with the assistance of AI translation services.