DB Financial Investment noted on the 20th that Hyundai Marine & Fire Insurance would not be able to pay dividends this year due to an increase in other comprehensive losses from falling interest rates and a rise in reserve funds for surrender benefits. It also lowered the target price from 42,800 won to 26,900 won and downgraded its investment opinion from ‘buy’ to ‘neutral.’ The closing price for Hyundai Marine & Fire Insurance on the previous trading day was 26,600 won.
DB Financial Investment expressed concern that the solvency ratio of Hyundai Marine & Fire Insurance, a year-end resilience indicator, would fall to around 150% in the future. It also predicted that a subordinate bond issuance could be pursued early next year. The nearly 30 basis points (1 basis point = 0.01 percentage point) decline in the interest rate of the 10-year government bond since the end of September and the strengthening of actuarial assumptions regarding non-guaranteed products are likely to influence this situation.
Lee Byeong-geon, a researcher at DB Financial Investment, said, “For the time being, expectations for dividends are difficult,” and explained, “Without dividends, the existing target valuation (stock price level relative to performance) becomes meaningless. Therefore, we applied a target price of 26,900 won, targeting a price-to-book ratio (PBR) of 0.4 times, which is the low point for large banks, and downgraded our investment opinion to ‘neutral.’
There is the possibility of future adjustments to regulatory easing, but if there are no major changes to the current direction of regulatory revisions, it is expected that the resumption of dividends will be difficult for the next 2 to 3 years after 2025.
DB Financial Investment analyzed that in order to raise its investment opinion for Hyundai Marine & Fire Insurance, it is premised on a significant improvement in the company's profitability from new contracts, along with the necessity for improvements related to reserve funds for surrender benefits and other comprehensive income, a significant increase in interest rate level, hikes in health insurance rates beyond the limit, and groundbreaking improvements in compensation-related systems for non-coverage and other health insurance.
The researcher noted, “Despite the negative outlook regarding dividends, the reason for the delayed downgrade of the investment opinion was because there was some expectation for the ongoing improvements in health insurance and non-coverage related systems.”
He added, “However, due to the recent political uncertainty, the likelihood of related systems being strongly and promptly pursued has diminished.”