[Click eStock] Hyundai Marine & Fire Insurance, Top Pick in the Industry "Expectations Continue in the Second Half"

[Asia Economy Reporter Lee Seon-ae] Daishin Securities announced on the 20th that it maintains a Buy rating and a target price of 32,000 KRW for Hyundai Marine & Fire Insurance.

Despite the recent record-breaking new sales of protection insurance, operating expenses are being controlled, and moreover, the introduction of IFRS17 is expected to significantly enhance the CSM value, which is positive. As of June 2021, Hyundai Marine & Fire Insurance's LAT surplus stands at 13.2 trillion KRW.

With no impact from typhoons or monsoons, stabilization of the general insurance loss ratio is expected. The incurred loss amount for automobile insurance has been limited since the second quarter, and considering that traffic volume has not changed significantly, institutional factors cannot be ignored. The quarterly loss increase rate recorded a historic low of QoQ +0.3%. Taking into account that the Safe Speed 5030 policy started in April this year, loss ratio improvement is expected to continue in the second half.

Thanks to improvements in automobile and general insurance loss ratios, profits up to the first half reached 249 billion KRW, a 35.5% increase compared to last year. Due to the unusual absence of typhoons and monsoons this year, the general insurance loss ratio remained in the 50% range in July, and the automobile insurance loss ratio was recorded at 79.7%. It is understood that Hyundai Marine & Fire Insurance has no liability related to the fire in the Cheonan apartment parking lot.

The risk loss ratio rose in May and June but turned downward in July. The new contracts saw a significant impact from pent-up demand due to the second quarter’s sales suspension marketing, so a decrease in July was inevitable. It is too early to judge third-quarter profits, but the atmosphere up to July is positive. Most of the general insurance policies are related to Hyundai Heavy Industries, Hyundai Motor Company, Hyundai Construction, etc., and although the frequency is low, the severity is high, so unless a major accident occurs, the loss ratio is expected to remain stable.

Although the automobile insurance loss ratio has declined more than expected, which could lead to controversy over premium reductions, an increase quarter-over-quarter from the third quarter is inevitable, so pressure for reductions is unlikely to be easy. However, the earned premium for automobile insurance increased by 11% compared to the same period last year, showing a significant effect of rate hikes up to the first half, making it difficult to expect loss ratio improvements at the first half level in the second half. Institutional support continues steadily.

Meanwhile, the introduction of IFRS17 is expected to improve both capital and profits, ultimately contributing to an increase in DPS.

Researcher Park Hye-jin of Daishin Securities emphasized, "Since the profit growth rate will be considerable when IFRS17 is introduced in 2023, maintaining a dividend payout ratio of 25%, which is a mid- to long-term standard, will not be easy. However, since both profits and capital adequacy will increase, DPS is likely to rise."

The 2021 dividend is expected to maintain the 2020 dividend payout ratio. Therefore, the DPS forecast is raised by 17.4% from the previous 1,150 KRW to 1,350 KRW. This corresponds to a dividend yield of 5.3% based on the closing price on the 19th.

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