"Let's Reconsider Neglected Sonbo Stocks"

Securities Industry: "The Only Sector Yet to Recover to Pre-COVID Levels" Interest

[Asia Economy Reporter Park Jihwan] It is time to take another look at the non-life insurance sector. Securities firms have identified non-life insurance stocks as one of the sectors with the slowest stock price recovery compared to the pre-COVID-19 period, labeling them as representative undervalued stocks.

According to the Korea Exchange on the 18th, since January 2 of last year, before the COVID-19 impact, until the day before, the average stock price of non-life insurance companies fell by -2.15%. Samsung Fire & Marine Insurance (-11.11%) and Hyundai Marine & Fire Insurance (-4.25%) saw their returns decline, while DB Insurance (2.40%) and Meritz Fire & Marine Insurance (4.37%) only experienced slight increases.

This trend sharply contrasts with the stock price movements of life insurance companies, which dominate the insurance industry. During the same period, life insurers such as Samsung Life Insurance (11.08%), Hanwha Life Insurance (68.34%), and Tongyang Life Insurance (45.64%) saw their stock prices rise by an average of 41.67%. The liquidity supply by governments worldwide in response to COVID-19 and the ensuing economic recovery pushed interest rates higher, which brought the stock prices of interest rate-sensitive life insurers back to pre-pandemic levels. Life insurers rely more heavily on long-term bond management in asset management than non-life insurers, so interest rate movements significantly affect their earnings and stock prices. When interest rates rise, investment income increases through higher asset management profits, and the issue of negative spread is resolved, leading to improved earnings. Negative spread refers to the loss an insurer incurs when the investment yield is lower than the fixed interest rate promised to customers.

On the other hand, despite a favorable earnings trend with over 20% profit growth for two consecutive years through this year, most non-life insurance stocks remain undervalued. According to Daishin Securities, the average forecasted price-to-book ratio (PBR) for Samsung Fire & Marine Insurance, DB Insurance, and Hyundai Marine & Fire Insurance this year is about 0.49 times. Researcher Park Hyejin of Daishin Securities stated, "Non-life insurance stocks are the only sector that has not recovered to pre-COVID-19 price levels and have been thoroughly neglected for two years while all other stocks rose. Valuations are at historic lows, yet earnings are expected to increase for two consecutive years since 2019, so it is judged to be a time to pay attention."

Institutional support also brightens the stock outlook. Since April, the implementation of ‘Safe Speed 5030’ (urban area vehicle speed limit of 50 km/h, and 30 km/h or less on residential side streets) has led to a decrease in car accidents. Additionally, the plan to mandate submission of medical certificates for treatments lasting more than three weeks, aimed at curbing excessive treatment costs for minor car accident patients, scheduled for the second half of the year, is positive news. The combined automobile insurance loss ratio for the three major non-life insurers?Samsung, DB, and Hyundai?is expected to decline by an average of 2.1% this year. It is analyzed that insurance operating profits will increase by 50 to 60 billion KRW per 1% decrease. Researcher Lim Heeyeon of Shinhan Financial Investment emphasized, "Non-life insurance can expect policy benefits such as annual increases in actual loss insurance premiums and revisions to the standard automobile insurance policy terms."

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