[Click eStock] "Hyundai Marine & Fire Insurance, Capital Decrease Expected with IFRS17 Guideline Application... Target Price Down"

NH Investment & Securities announced on the 2nd that it is lowering the target price for Hyundai Marine & Fire Insurance from the previous 56,000 KRW to 50,000 KRW.

With the introduction of the International Financial Reporting Standard (IFRS 17) for the first time this year, controversy arose over insurance companies 'inflating their earnings,' prompting financial authorities to provide guidelines on actuarial assumptions. Accordingly, some adjustments to the previously disclosed IFRS 17-based financial statements are inevitable. In the case of Hyundai Marine & Fire Insurance, it is expected to have a greater impact on capital rather than profit and loss.

The part of the financial authorities' guidelines that mainly affects Hyundai Marine & Fire Insurance concerns assumptions for indemnity health insurance, extending the period to reach the target loss ratio (100%) to 15 years. An increase in liabilities (BEL, CSM) for the first and second generations of indemnity insurance subject to the fair value method and a decrease in capital are expected, while a slight increase in insurance contract margin (CSM) will offset the profit decrease due to changes in CSM amortization standards, resulting in a limited impact on profit and loss. In other words, the application of these guidelines is expected to mainly reduce equity capital and lower the K-ICS ratio rather than affect profit and loss.

Considering uncertainties such as changes in financial statements due to the application of these guidelines, NH Investment & Securities has lowered the target price for Hyundai Marine & Fire Insurance. However, it added that the recent stock price adjustment is excessive. Junseop Jeong, a researcher at NH Investment & Securities, analyzed, "Among the three non-life insurers, Hyundai Marine & Fire Insurance is expected to experience the greatest impact on equity capital reduction," adding, "This is because Hyundai Marine & Fire Insurance's first-quarter surrender value reserves amount to 4.4 trillion KRW, accounting for 56% of its equity capital, which is larger than its competitors." He also added, "The current K-ICS ratio (178.6%) is also expected to decline with the reduction in equity capital."

However, he pointed out, "Since retained earnings decrease by the same amount as the reduction in surrender value reserves, there is no change in distributable profits, and institutional uncertainties are expected to gradually diminish, so the current stock price adjustment is considered excessive."