Top Insurance Pick
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY; raise target price 5% to KRW315,000
We maintain BUY on Samsung F&M and raise our TP by 5% to KRW315,000. Our rating remains unchanged because:
(1) the company can maintain a consistent capital policy with its high RBC ratio;
(2) downside support for the stock should firm with 2021 DPS expected to climb to KRW13,500 (5.6% dividend yield) on the back of earnings improvement; and
(3) recurring profitability should improve as relatively solid loss ratios for property/casualty policies in 2Q21 continue into 3Q21.
We maintain Samsung F&M as our top Insurance pick based on the following:
(1) Changes to earnings catalyzed by IFRS 17 adoption should give management flexibility to increase dividend payouts
(2) The company is more capable of steady collateral management than its competitors.
While focus should be on CSM scale during IFRS 17 adoption, we believe CSM management will be more important going forward, as Samsung F&M’s solid collateral portfolio should bolster earnings stability. Our TP was derived by applying a 0.83x target multiple (sustainable ROE: 5.6%→5.9%; COE: 6.6%→6.7%; TGR: 2.0%) to 12m fwd BVPS of KRW382,925.
3Q21 forecast
We forecast 3Q21 standalone NP at KRW250.5bn (+28.1% YoY). Combined ratio should drop 2.0pp YoY to 102.2% with overall loss ratio falling 1.8pp (-3.8pp in auto loss ratio, -8.0pp in property/casualty loss ratio). After hitting unfavorable levels throughout 2020, property/casualty loss ratios began to normalize in 2Q21; this should continue in 3Q21.
Meanwhile, expense ratio is estimated to have retreated 0.2pp, as a 7.0% YoY drop in new personal insurance contracts lightens the cost burden for contract acquisitions. Investment yield is estimated at 2.5% (-12bp YoY). Overall, we expect 3Q21 earnings to be relatively solid because the company’s long-term loss ratio is higher than second-tier non-life insurers while expense ratio improvement has shrunk. Even so, we see the normalization of property/casualty loss ratios as a positive development.