손보株, Lack of Rebound Momentum for the Time Being

[Asia Economy Reporter Song Hwajeong] The sluggish performance of non-life insurance stocks is expected to continue for the time being. With rate hikes falling short of market expectations, improving earnings remains challenging.

According to NH Investment & Securities, the combined net profit of five non-life insurance companies in the fourth quarter of last year is projected to decline by 33.8% year-on-year to 159.4 billion KRW, falling short of the consensus estimate of 235.2 billion KRW. Junseop Jeong, a researcher at NH Investment & Securities, explained, "The combined ratio worsened to 110.9% as automobile, long-term risk, and expense ratios all increased compared to the same quarter last year and the previous quarter, and an underwriting loss of 1.4746 trillion KRW is expected." However, he analyzed that an increase in investment operating profit based on large-scale sale gains will reduce the extent of the profit decline.

With the rate hike events for actual loss and automobile insurance effectively over, earnings improvement should occur, but it is expected to be difficult to escape from poor performance for the time being. Researcher Jeong said, "Automobile insurance is expected to gradually improve loss ratios compared to the previous year starting from the second quarter of this year, but long-term risk loss ratios will be difficult to improve this year due to ongoing uncertainties in medical expense claims," adding, "Improvement in expense ratios will also be difficult due to the discontinuation of new contracts in the first and fourth quarters of this year, and investment returns are inevitably expected to decline compared to last year."

Researcher Jeong stated, "It will be difficult to expect a meaningful rebound in non-life insurance earnings and stock prices at least until the first half of this year," and added, "The key to driving a rebound will be whether the automobile insurance loss ratio actually improves this year, whether the increase in medical expense claims stabilizes, and whether competition for new contracts eases. For now, especially in the first quarter, the current sluggish business conditions are expected to continue."

In line with this outlook, NH Investment & Securities maintains a 'neutral' investment rating on non-life insurance stocks and has lowered the target prices for all five non-life insurers. Samsung Fire & Marine Insurance's target price was lowered from 295,000 KRW to 275,000 KRW, DB Insurance from 55,000 KRW to 52,000 KRW, and Hyundai Marine & Fire Insurance from 28,000 KRW to 26,000 KRW. Additionally, Meritz Fire & Marine Insurance's target price was cut from 24,000 KRW to 20,000 KRW, and Hanwha General Insurance's from 3,100 KRW to 2,700 KRW.