Insurance Companies Ahead of Earnings Announcement: "Strong Performance to Continue This Year"

[Asia Economy Reporter Oh Hyung-gil] Insurance companies are expected to achieve strong first-quarter earnings despite the spread of COVID-19. Life insurers are likely to see net profits from the reversal of variable annuity reserves due to the stock market boom, while non-life insurers are expected to benefit from reduced traffic and medical usage.

According to financial information firm FnGuide, the combined net income of three life insurers?Samsung Life, Hanwha Life, and Mirae Asset Life?and five non-life insurers?Samsung Fire & Marine, Hyundai Marine & Fire, DB Insurance, Meritz Fire & Marine, and Hanwha General Insurance?for the first quarter is estimated to reach 1.646 trillion KRW, an 82.1% increase compared to the same period last year.

Samsung Life is estimated to post a consolidated net profit of 751.7 billion KRW in the first quarter, a sharp increase of 192.9% year-on-year. This is due to one-time factors such as special dividends from Samsung Electronics and dividends from affiliates, as well as the impact of the reversal of variable annuity reserves amid the stock market boom.

On the 16th, Samsung Electronics paid shareholders a regular dividend of 354 KRW per common share (355 KRW per preferred share) and a special dividend of 1,578 KRW per share as part of last year's settlement. Samsung Life received 1.0132 trillion KRW in dividends, of which about 800 billion KRW was from the special dividend.

Hanwha Life is also expected to post a net profit of 124.5 billion KRW, a 48.3% increase from 83.9 billion KRW in the same period last year. Hanwha Life’s strong performance is attributed to the base effect from variable annuity reserves set aside in the first quarter of last year and partial reversals due to the recent stock market rally.

Variable annuity reserves refer to the reserves set aside as a certain percentage of policyholder reserves to guarantee minimum pension reserves and minimum death benefits to policyholders. When the stock market declines, the amount of variable annuity reserves that must be accumulated increases, thereby reducing net profits.

Samsung Fire & Marine is expected to post a net profit of 328.6 billion KRW in the first quarter, an 83.4% increase from the previous year. Like Samsung Life, Samsung Fire & Marine’s investment income is expected to rise due to special dividends from Samsung Electronics in the first quarter.

Hyundai Marine & Fire and Meritz Fire & Marine are analyzed to have net profits of 104 billion KRW and 1.1105 trillion KRW, respectively, increasing by 16.2% and 6.6%. This is due to the effect of increased auto insurance premiums and improved auto insurance loss ratios as accidents decreased amid the spread of COVID-19. The decline in long-term insurance loss ratios due to reduced hospital visits also had an impact.

Mirae Asset Life is expected to post a net profit of 20.6 billion KRW in the first quarter, down 18.8% from the same period last year, due to one-time costs such as voluntary retirement programs. DB Insurance is also estimated to decrease slightly by 2.9%, from 155.3 billion KRW to 150.7 billion KRW.