[Click eStock] "Hyundai Marine & Fire Insurance, Premium Increase & Capital Ratio Management... Target Price Maintained"

Shinhan Investment Corp. maintained a buy rating and a target price of 50,000 KRW on Hyundai Marine & Fire Insurance on the 19th, stating that "starting next month, insurance premium hikes will be significantly larger compared to other insurers, improving the quality of new contracts."

On the same day, Heeyeon Lim, Senior Researcher at Shinhan Investment Corp., said, "Although a decline in new contracts due to intensified competition is inevitable, the substantial premium increase is a differentiating factor from competitors."

She added, "This year’s annual operating profit is expected to increase by 35.4% to 1.4 trillion KRW, and net profit is projected to rise by 23.4% to 994.4 billion KRW," attributing this to "last year’s base effect and the influx of new contracts."

Last year, a loss of 200 billion KRW from the difference between expected and actual results and an increase in respiratory disease claims led to a one-time recognition of approximately 400 billion KRW in loss-bearing contract costs at year-end. The impact appears to be due to more frequent hospital visits than in the past as a side effect of the COVID-19 pandemic, as well as the inclusion of costs for simultaneous influenza and COVID-19 testing.

This year, such claims are on a declining trend. Senior Researcher Lim stated, "The expected versus actual difference is calculated using assumptions based on the past five-year average statistics, but last year’s statistics reflected lower claims during the COVID-19 pandemic, which inevitably caused discrepancies with actual figures," adding, "With the year-end assumption update, the expected versus actual loss is expected to shrink to about 165 billion KRW starting this year."

Hyundai Marine & Fire Insurance plans to raise its capital ratio to the 180% range within the year through subordinated bond issuance and reinsurance cessions to mitigate large-scale surrender risks. Senior Researcher Lim explained, "While it is somewhat regrettable that unnecessary capital costs are incurred, the discount rate currently reflected in the stock price is greater than the increase in capital costs. Therefore, the current strategy can be justified," adding, "This is why the expectation for stock price appreciation remains valid."

Senior Researcher Lim also said, "Preparations to improve the low insurance contract margin (CSM) conversion multiple and the new solvency ratio (K-ICS), which are major discount factors, have all been completed, and the results will be confirmed in this year’s annual figures," adding, "We are also actively considering expanding shareholder returns. If the valuation of the top-tier companies (stock price relative to corporate value) is burdensome, now is the time to switch."