[Click eStock] "Hanwha Life, Resolves Capital Adequacy Issues Amid Rising Interest Rates... Investment Opinion Neutral"

[Asia Economy Reporter Lee Myunghwan] DB Financial Investment announced on the 29th that it maintains a neutral (hold) investment rating and a target price of 3,050 KRW for Hanwha Life Insurance. Although the issue of capital adequacy is expected to be resolved due to the ongoing base interest rate hikes, it is difficult to assess the company's shareholder return capability.

DB Financial Investment believes that the capital adequacy issue of Hanwha Life Insurance has been resolved amid the recent trend of base interest rate increases. The 10-year government bond yield, which was 2.255% at the end of last year, rose significantly to 2.965% at the end of March and further to 3.622% at the end of June. After the Bank of Korea's Monetary Policy Committee raised the base rate by 0.25 percentage points to 2.5% on the 24th, the 10-year government bond yield increased to 3.585%.

Considering that the negative spread of life insurers, including Hanwha Life, is mainly affected by the operating interest rate, DB Financial Investment evaluates the rate hike as clearly positive. If the 10-year government bond yield remains in the 3% range going forward, the issue of capital adequacy deterioration caused by increased liabilities related to negative spread is expected to be resolved from an accounting perspective, according to DB Financial Investment.

They also forecast that financial performance will improve after the application of the new International Financial Reporting Standard (IFRS 17). The poor performance of Hanwha Life in the first half of the year was largely influenced not only by negative spread losses but also by accounting issues related to variable annuity guarantee reserves. However, Hanwha Life plans to maintain a hedge ratio of about 60% for variable annuity guarantee reserves, and with the application of IFRS 17, the contradictory quarterly reflection of positive and negative impacts related to interest rate fluctuations is expected to be resolved. The improvement in financial performance is anticipated to occur next year.

Researcher Lee Byung-geon of DB Financial Investment stated, "Since the detailed contents of the 'surrender value reserve' related to corporate tax and distributable profit calculation have not been finalized, it is still difficult to make a specific judgment on the improvement of shareholder return capability, so we maintain a neutral (hold) opinion." He added, "Once the specific outline of the related system becomes clear, we plan to analyze the relevant matters and reconsider the investment rating positively."