Performance Feast of Non-Life Insurance Stocks "A Wise Investment Destination in an Upward Interest Rate Curve"

[Asia Economy Reporter Lee Seon-ae] Although the recent upward trend has somewhat slowed, market interest rates are expected to rise in the medium to long term due to expectations of economic recovery, making the non-life insurance sector a wise investment choice. With earnings momentum expected to follow, the stock prices of major non-life insurance companies are likely to be re-rated.

According to Hana Financial Investment on the 14th, the combined net profit of five non-life insurers?Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, Meritz Fire & Marine Insurance, and Hanwha General Insurance?is projected to reach 840 billion KRW in the first quarter, up 57.6% year-on-year and 183.2% quarter-on-quarter. This is expected to mark the highest quarterly performance in 16 quarters since Q1 2017. Additionally, the combined ratio of incurred loss ratio and incurred expense ratio is forecasted at 102.9% (down 3.4 percentage points year-on-year and 2.7 percentage points quarter-on-quarter), indicating that the insurance underwriting profit will achieve the best quarterly result in 11 quarters since Q2 2018. Consequently, their annual net profit is expected to reach 2.4 trillion KRW, a 13.6% increase from the previous year, marking the highest level since 2017.

The non-life insurance sector, benefiting from earnings momentum, is also expected to gain from the continuous rise in market interest rates. Lee Hong-jae, a researcher at Hana Financial Investment, analyzed, "When market interest rates rise, non-life insurers directly benefit as new investment yields improve. Furthermore, the attractiveness of low price-to-earnings ratios (PER) and stable dividends will be highlighted, leading to stock prices outperforming the market."

He added, "In the current rising interest rate environment, we recommend increasing exposure to non-life insurers," citing Samsung Fire & Marine Insurance and DB Insurance as top picks, and Hanwha General Insurance as a stock of interest.

Samsung Fire & Marine Insurance and DB Insurance, which show superiority in terms of the stability of their Risk-Based Capital (RBC) ratios, have a high likelihood of stock price outperformance. This is because foreign investor demand is expected to remain favorable. In the first quarter, while foreign investors sold more than 8 trillion KRW net in the KOSPI market due to rising interest rates, they net purchased over 260 billion KRW in non-life insurers. Among them, Samsung Fire & Marine Insurance and DB Insurance saw particularly strong net buying. The researcher forecasted, "As market interest rates are expected to trend upward, the demand advantage for these two companies will continue during the re-rating phase of the financial sector overall."

Regarding earnings momentum, Samsung Fire & Marine Insurance and Hanwha General Insurance are expected to stand out. Samsung Fire & Marine Insurance is projected to deliver solid results, supported by special dividends from Samsung Electronics and the largest improvement in combined ratio among major insurers. Hanwha General Insurance is expected to be the only company this year with a decline in long-term loss ratio compared to the previous year. This is because 37% of all indemnity contracts will be renewed this year, and the effect of premium inflows will be maximized thanks to an overwhelmingly high increase in indemnity insurance premiums (+57% in 2020) compared to other companies. As a result, its net profit growth rate is expected to be 56.8%, the highest among the five companies. Although DB Insurance’s earnings momentum is weaker than last year, it boasts superior profit stability due to a lower expense ratio compared to others, and the risk related to long-term loss ratio is low due to the renewal cycle of indemnity insurance contracts.

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