[Asia Economy Reporter Myung-Hwan Lee] This year, insurance stocks have recorded the highest returns in the securities market, benefiting from the consecutive interest rate hikes.
According to the Korea Exchange on the 17th, the KOSPI Insurance Index, which includes 12 insurance stocks, rose 12.17% from the first trading day of the year on January 3 to April 15. The index, which stood at 13,285.27 on January 3, closed at 14,901.46 on the 15th.
Compared to the KOSPI's 9.46% decline during the same period, the strength of the insurance sector stands out. It ranks first in returns among KOSPI sector indices for the same period, outperforming steel and metal (10.14%), which benefited from rising commodity prices, and telecommunications (6.76%), a traditional defensive sector.
The KOSPI Insurance Index components include Samsung Life Insurance, Samsung Fire & Marine Insurance, Meritz Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, Hanwha Life Insurance, Korean Reinsurance Company, Tongyang Life Insurance, Mirae Asset Life Insurance, Lotte Insurance, Hanwha General Insurance, and Heungkuk Fire & Marine Insurance.
Looking at individual components, Lotte Insurance (41.36%) and Hyundai Marine & Fire Insurance (40.09%) recorded gains exceeding 40% this year. Among these, non-life insurance stocks saw significant increases with Meritz Fire & Marine Insurance (38.45%), Hanwha General Insurance (33.96%), DB Insurance (27.59%), and Heungkuk Fire & Marine Insurance (18.19%) all rising substantially. This is attributed to benefits from improvements in the actual expense insurance system, stricter insurance payout criteria for cataract surgeries, and improved automobile insurance loss ratios due to COVID-19 and high oil prices.
Life insurance stocks such as Samsung Life Insurance (0.94%), Hanwha Life Insurance (5.62%), Tongyang Life Insurance (4.24%), and Mirae Asset Life Insurance (0.25%) showed modest gains but performed relatively well considering the overall market downturn this year. It is estimated that the decline in profits related to variable insurance products, their main offerings, due to the stock market drop, acted as a burden.
The strength of insurance-related stocks is analyzed as a result of the market's interest rate hike signals since early this year. Following the U.S. Federal Reserve's acceleration of tightening, the Bank of Korea also raised its benchmark interest rate twice this year, causing market interest rates to rise accordingly.
In the securities industry, rising interest rates are generally seen as positive for the insurance sector. When interest rates rise, liabilities decrease more significantly than assets, easing the burden of liabilities. Jun-Seop Jung, a researcher at NH Investment & Securities, explained, "Interest rate hikes are generally favorable for insurers. Structurally, insurers have longer liability durations than asset durations, so as interest rates rise, capital, or corporate value, increases."
Researcher Jung added, "With the introduction of the new accounting standard IFRS 17 starting next year, insurers will mark liabilities to market value in accounting. From next year, changes in corporate value due to interest rate fluctuations can be confirmed in financial statements and supervisory standards."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
