[Click e-Stock] Insurance Stocks with Improving Earnings Still Remain Inexpensive

LS Securities has raised its target price for Hyundai Marine & Fire Insurance from 45,000 won to 58,000 won, while maintaining its buy rating.

On August 19, Jeon Bae-seung, an analyst at LS Securities, stated, "Although the share price rebounded on the back of clear earnings improvement and recent renewed discussions on improving the surrender value reserve system, the price-to-book ratio (PBR) still remains low at 0.6x. Considering improvements in recurring profitability and strengthened capital stability, the level of both absolute and relative undervaluation remains substantial. We are raising our target price to reflect higher earnings forecasts and continue to recommend Hyundai Marine & Fire Insurance as our top sector pick."

The company posted a net profit of 391.8 billion won for the second quarter of this year, delivering an earnings surprise that surpassed market expectations. Jeon explained, "Long-term insurance profits surged by 89% to 348 billion won, driven by an increase in Contractual Service Margin (CSM) amortization income, improved technical income from experience versus assumptions (EVS), and a reversal of approximately 90 billion won in loss expenses for actual loss insurance for the second consecutive quarter due to a change in actuarial assumptions." He added, "Auto insurance turned profitable due to reduced driving volume, while general insurance profitability also continued to improve, resulting in better earnings across all insurance lines."

He also noted, "Despite weak investment results in the first quarter of this year, investment profits rebounded to around 100 billion won, driven by lower valuation losses and higher interest income. Even excluding the reversal of loss expenses, the company demonstrated profit-generating capability of roughly 300 billion won, which is evaluated as a positive outcome both in terms of figures and content."

Despite a decline in new contract sales, the CSM multiplier remained high, leading to a slight quarter-on-quarter increase in new contract CSM. Jeon remarked, "With the improvement in experience versus assumptions from the expansion of expected insurance claims and stabilization of paid claims, insurance profit margins should continue to improve, supported in the second half of the year by the introduction of managed care reimbursement and further systematic enhancements in automotive medical cases. Taking into account lower loss ratios in the first and second years of the policy period, continued improvement in actual loss EVS, and higher retention rates, the risk of year-end loss expense burdens has notably diminished compared to the past. Even with the application of loss ratio assumptions for simplified insurance, the magnitude of CSM adjustments is not expected to be significant due to improved basic statistics."

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