[Click eStock] "Hyundai Marine & Fire, No Dividends Despite 1 Trillion Won Net Profit... Caution Needed"

Achieved Record Net Profit, but K-ICS Ratio Remains Weak
Barely Exceeds Financial Authorities' Recommendation... Improvement Needed

Despite Hyundai Marine & Fire Insurance posting a net profit exceeding 1 trillion won last year, an analysis suggests that its stock price remains stagnant due to dividend non-payment and a low capital ratio.

On the 24th, NH Investment & Securities lowered Hyundai Marine & Fire Insurance's target stock price by 10.3% to 35,000 won. The closing price on the previous trading day was 24,000 won. This was explained as a result of a decrease in the insurance contract service margin (CSM) balance, which reduced amortization gains, and the reflection of a worsening automobile insurance market condition in the earnings.

However, the investment opinion of 'buy' was maintained. Despite being a major non-life insurance company showing an annual net profit of over 1 trillion won, its price-to-earnings ratio (PER) is only 2 times, indicating a significant valuation discount compared to competitors. It was also anticipated that if the government's reforms on non-reimbursable and actual loss insurance systems proceed properly, Hyundai Marine & Fire Insurance would gain greater financial benefits compared to its competitors. Last year, Hyundai Marine & Fire Insurance recorded its highest ever net profit of 1.0307 trillion won, up 33.4% year-on-year.

On the other hand, the solvency ratio (K-ICS), a key indicator of insurance company soundness, stood at 155.8% at the end of last year, down 17.4 percentage points from the previous year-end. This barely exceeded the financial authorities' recommended level of 150%. It is analyzed that the financial authorities' guidelines on lapse rates for no-surrender and low-surrender insurance had a significant impact. By conservatively assuming lapse rates, available capital decreased. However, if there are no additional assumption regulations this year, it is expected that the CSM balance will increase and the ratio can be defended. Additionally, factors such as a decline in market interest rates and a reduction in the discount rate for insurance liabilities also lowered the solvency ratio.

Hyundai Marine & Fire Insurance plans to defend its capital ratio through subordinated bond issuance and other measures. Junseop Jeong, a researcher at NH Investment & Securities, explained, "The lack of distributable profits due to accounting standards is the biggest reason for dividend non-payment and weak stock performance," adding, "Since the industry is discussing improvement measures with the financial authorities, there is room for future improvement."