[Click eStock] "Hanwha Life, 1Q Net Profit Expected at 173.2 Billion KRW...Significantly Exceeding Forecast"

Base Effect Due to Variable Annuity Guarantee Reserves Accumulated in the Same Period Last Year

[Asia Economy Reporter Minwoo Lee] Hanwha Life Insurance's net profit for the first quarter of this year is expected to significantly exceed market consensus estimates. This is attributed to the base effect from the variable guarantee reserves set aside in the same period last year and some reversal effects.

On the 1st, Hana Financial Investment forecasted that Hanwha Life would record premium income of 3.103 trillion KRW and net profit of 172.3 billion KRW for the first quarter of this year. Although premium income is expected to decrease by 9.2% compared to the same period last year, net profit is projected to increase by 260.2% year-on-year and turn positive compared to the previous quarter, greatly surpassing the consensus estimate of 85.2 billion KRW.

Researcher Hongjae Lee of Hana Financial Investment explained, "The base effect from the variable guarantee reserves set aside in the same period last year and some reversal effects were significant. Additionally, the underwriting profit improved by 41.6% year-on-year, increasing insurance profit to 192.9 billion KRW, up 30.9% from the same period last year. The interest rate spread is estimated at -72 basis points (1bp=0.01%) due to favorable domestic and international stock markets." With these strong results and the disappearance of one-time losses from last year, net profit for this year is projected to rise 57.2% year-on-year to 309 billion KRW.

There is also analysis suggesting the need to pay attention to market interest rates this year. If market interest rates rise, variable guarantee profit and new investment income will improve, and uncertainties related to the fair value evaluation of insurance liabilities will be alleviated. In particular, the reduction of risks related to fair value evaluation is a factor that reduces valuation discounts. However, due to an increase in available-for-sale securities during the previous interest rate decline period, the solvency margin ratio (RBC ratio) has entered a phase of decline with rising interest rates. Researcher Lee pointed out, "The RBC ratio is a concern because it determines the scope of shareholder return policies and the company's operational flexibility. Also, since Hanwha Life cannot reclassify accounts until 2022, it must rely solely on retained earnings, so depending on this year's interest rate level, the RBC ratio may fall below 200%."

Against this backdrop, Hana Financial Investment raised Hanwha Life's target stock price by 47.6% to 3,100 KRW but maintained a 'neutral' investment rating. The closing price on the previous day was 3,210 KRW.

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