[Click eStock] Samsung Life Insurance Expected to Directly Benefit from Interest Rate Increase

by Hwang Junho

Published 20 Apr.2022 07:06(KST)

Updated 20 Apr.2022 14:33(KST)

[Click eStock] Samsung Life Insurance Expected to Directly Benefit from Interest Rate Increase

[Asia Economy Reporter Junho Hwang] Hana Financial Investment maintained its target price for Samsung Life Insurance at 96,000 KRW on the 20th, stating that it is "the life insurance company that can most comfortably benefit from rising interest rates."

The current interest rate level is favorable for Samsung Life Insurance. Due to the structure of insurance liabilities, especially long-term bond interest rates, when rates rise, the fundamentals of life insurers improve. This positively affects the improvement of the spread and the discount rate used in the market valuation of insurance liabilities. However, with rising interest rates, there may be a possibility of a decline in the solvency margin ratio (RBC) due to a decrease in Other Comprehensive Income (OCI). Although RBC will be replaced by the new solvency regime (K-ICS), the short-term uncertainty it causes is considered an inconvenient factor.

In the case of Samsung Life Insurance, the RBC ratio exceeded 300% at the end of last year. Hana Financial Investment's analysis is that even if interest rates rise further in the future, the risk is very limited, making Samsung Life Insurance the life insurer that can most comfortably enjoy the benefits of rising interest rates.

Hana Financial Investment does not have high expectations for Samsung Life Insurance's first-quarter earnings this year but expects limited earnings volatility. The net income attributable to controlling shareholders for the first quarter of this year is forecasted to decrease by about 66.2% compared to the previous year. This is mainly due to the base effect from special dividend income in the same period last year, and insurance profit is expected to decrease by about 3.1%.

Researcher Hongjae Lee of Hana Financial Investment said, "The amortization of the Contractual Service Margin (CSM) on held contracts is expected to reach 600 billion KRW annually, and even after IFRS 17, profit visibility is judged to be high at around 2 trillion KRW." He added, "Considering Samsung Life Insurance's position within the Samsung Group's governance structure and its excellent capital ratio, along with the prospect of gradual DPS increases, the price-to-book ratio of around 0.3 times indicates an undervalued stock."