[Click eStock] "Hanwha Life Insurance Expected to Significantly Exceed Market Q3 Net Profit Estimates... Investment Rating Upgraded"

[Asia Economy Reporter Jihwan Park] Hana Financial Investment announced on the 28th that it expects Hanwha Life Insurance's third-quarter earnings to significantly exceed market expectations and upgraded its investment rating from 'Neutral' to 'Buy.' However, it noted that the improvement in return on equity (ROE), excluding the impact mainly caused by increased non-interest income from the spin-off of subsidiary-type GA, is minimal, and maintained the target price at 4,000 KRW.

Researcher Hongjae Lee of Hana Financial Investment stated, "The third-quarter standalone net profit is estimated at 111.5 billion KRW, a 70.3% improvement year-on-year, significantly exceeding the market expectation of 73 billion KRW." Due to the separation of underwriting and sales (spin-off of subsidiary-type GA), standalone non-interest margin is expected to increase by 75.4% year-on-year, driving a 23.4% year-on-year improvement in insurance profit.

With gains from disposals, the return on invested assets is expected to rise by 31 basis points (1bp = 0.01 percentage points) year-on-year, but variable guarantee profit and loss is expected to slightly weaken due to the sideways movement of the KOSPI index, resulting in interest and other income remaining at a similar level to the previous quarter. In the fourth quarter, variable guarantee profit and loss is expected to record approximately 80 billion KRW, driven by a 60bp increase in the starting interest rate compared to the previous year, leading to an improvement in interest income. The full-year net profit is projected to increase by 122.8% year-on-year to 438.7 billion KRW.

Researcher Hongjae Lee evaluated, "Concerns over large-scale capital erosion are diminishing due to rising market interest rates," but added, "However, there is a possibility that capital risk could reignite if the long-term forward rate (LTFR) declines in the future." Furthermore, since the flexibility regarding contract service margin (CSM) is limited, he believes that relative disadvantages in profits at the time of IFRS17 transition compared to other companies (especially non-life insurers) are inevitable.

He said, "With the introduction of IFRS17, the negative interest margin will be resolved, leading to increased profits," and added, "Considering that the loss ratio (L/R) remains at a stable level, the volatility of contract service margin (CSM) due to experience deviations is relatively favorable, and the absolute level of investment attractiveness can be seen as higher after IFRS17."