Insurance Stocks Rose as Others Fell; Invest Based on 'This' [Weekend Money]

Kiwoom Securities: "Assess Insurance Stocks Based on Valuation and Dividends"

Market observers say that when investing in insurance stocks, investors should make valuation the top priority.

Ahn Youngjun, a researcher at Kiwoom Securities, said in a recent report titled "Reviewing the Investment Appeal of the Insurance Sector," "We recommend using valuation as the foremost criterion when assessing insurance stocks."

Researcher Ahn said insurance stocks (Samsung Life Insurance, Hanwha Life Insurance, Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, and Hanwha General Insurance) posted relatively stronger share-price returns than the broader market in the third quarter of this year, driven by factors including earnings and interest rates. Most insurers reported high year-on-year earnings growth in the first half of this year, exceeding expectations. As market interest rates rose, investor demand for insurance stocks—defensive stocks that also benefit from rising interest rates—was supported.

However, he noted that the fact that insurance stocks are both dividend-paying and defensive stocks could affect their potential for appreciation. "The more share prices rise, the lower the dividend yield, which determines the appeal of dividend stocks," he said. "In addition, conditions this year have been unfavorable for dividend stocks: share prices have risen across the board amid a booming stock market, while rising market interest rates have also pushed up risk-free rates." He added that rising interest rates may benefit insurers' fundamentals but could work against investors, and that there are limits to expecting share prices to rise on the back of higher dividends.

He advised that if insurers are dividend-paying companies and cannot sharply increase their dividends, investors should consider valuation first. "A reasonable time to invest is when the current share price and dividend yield offer a sufficiently wide spread over the risk-free rate," he said. "As most insurance stocks currently have limited valuation and dividend appeal, investors should focus on company-specific catalysts beyond industry conditions and dividends."

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