Non-life Insurers Look Attractive
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
Given that decreased liability burdens amid an interest rate upcycle are to be reflected in IFRS17-based financial statements, insurers’ share prices should strengthen once their IFRS17-method figures become visible in 2H22.
Non-life insurers to report stable earnings
We expect non-life insurers to show stable earnings in 2H22, but not to the extent of the earnings surprises seen in 1Q22. Auto loss ratio expansion will likely be held within a limited range thanks to a favorable turn in related regulations. Long-term risk loss ratios are set to improve in line with the aggressive response of authorities and insurers to excessive treatment claims (eg, for cataracts). However, OP and new contract figures for life insurers are likely to continue sluggish for now.
Market interest to shift to IFRS17 towards end of year
Once end-year draws nearer, we believe that market interest will shift more towards IFRS17-based results rather than the current non-IFRS17 earnings figures. Around 4Q22 (September~October), it should become possible to compare insurer’s capital and CSM numbers under an IFRS17 framework.
As economic assumptions for calculating liability have been eased in line with rising interest rates, expectations toward the benefits IFRS17 should grow larger than the concerns. With liability burden shrinking, not only non-life insurers, but also life insurers are likely to report better capital and CSM levels than previously projected.
Non-life insurers look attractive; life insurers to be highlighted at end of year
We expect insurers’ share prices to be robust in 4Q22 once IFRS17-method figures become visible. Non-life insurers should display clear earnings increases, and life insurers are expected to resolve structural reverse interest margin issues. We offer Hyundai M&F as our sector top pick, and we also present Hanwha General Insurance as a preferred play.