Korea’s insurers likely run high on strong earnings in 2017

2017.07.12 15:46:29 | 2017.07.12 15:48:48

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Life and non-life insurance companies in South Korea expect to outperform their strong year in 2016 this year, benefiting from higher interest rates and improved auto insurance business and uncertainties over one-off costs related to suicide claims.

According to market data provider FnGuide on Tuesday, market analysts expected that the country’s top non-life insurer Samsung Fire & Marine Insurance Co.’s net profit for this year would reach 1.05 trillion won ($916.6 million), the historic high since its inception. It is a 25 percent jump from last year’s net profit of 840.9 billion won and also far above 930 billion won that the firm had estimated in the beginning of this year.

Samsung Fire & Marine Insurance in a regulatory filing on June 30 said that its net profit for the first five months of this year amounted to 708.2 billion won, nearly 70 percent of its annual target for this year.

One of the main drivers for the company’s bottom line growth is 200 billion proceeds gained from the sale of its building in central Seoul last year, but even without the one-off gain, the company’s earnings outlook still looks rosy on improvement in general business environment in the non-life insurance industry, according to market analysts.

Among positive factors that are expected to continue to boost non-life insurers is improving margin from their auto insurance sales. According to Samsung Fire & Marine Insurance, its combined ratio of auto insurance product declined to 95 percent during the January-May period from 100 percent in the same period last year. The ratio measures an insurer’s profitability by comparing the incurred losses and expenses from daily operations against earned premium. The ratio below 100 means a company is making profit whereas the ratio above 100 suggests it is paying out more money.

Samsung Fire & Marine Insurance had marked down its car insurance premium by 2.7 percent last year but the across-the-board profitability of its auto insurance has steadily improved this year, said Yoon Tae-ho, analyst at Korea Investment & Securities.

Boosted by the improvement in auto insurance sector, the country’s another leading non-life insurer Dongbu Insurance also forecast to see a gain in its net profit for full 2017. The company’s bottom line for this year will likely jump 13 percent on year to 532.3 billion won after it has already earned 57 percent of its annual target net profit in the first five months of this year, according to market analysts.

The five-month accumulated net profit of other non-life insurers including Hyundai Marine & Fire Insurance and Meritz Fire & Marine Insurance also surged between 40 and 50 percent compared to a year earlier.

Life insurance firms are also poised to rake in more this year in a higher interest rate environment. Samsung Life Insurance, an affiliate of Samsung Group’s non-life insurance unit, is anticipated to see it net profit for this year rise by 400 billion won against a year ago period. The upward trend in interest rates should work favorable for the company by generating higher returns on investments and lowering the burden on reserves for future payouts on variable life insurance products. Concerns over suicide claims have also eased after the company completed paying out overdue suicide claims worth 170 billion won upon financial regulator’s order. In addition, its 7.9 percent stake in Samsung Electronics Co. is expected to deliver handsome cash dividend to Samsung Life Insurance this year.

Hanwha Life Insurance that paid off 90 billion won overdue suicide claims last year is also expected to see its 2017 net profit surge by 63 percent from a year earlier. Tongyang Life Insurance that had to reflect 317.6 billion won worth of bad debt allowance in its accounting book last year is anticipated to register higher profits this year.

By Park Joon-hyung

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