Kiwoom Securities lowered its investment opinion on the insurance industry to "neutral" on the 27th. It is expected to be difficult to anticipate shareholder returns for nearly a year after the settlement of account dividends, and there are several factors leading to an increase in loss rates due to flu, heavy snowfall, and wildfires.
An Young-jun of Kiwoom Securities stated that the likelihood of an increase in the loss rate of the insurance sector is high. First, the flu indicators in the first quarter of this year (January to March) worsened compared to the fourth quarter of last year (October to December). The flu patient rate per 1,000 outpatients in the first week of this year reached 100, marking the highest level ever recorded. Although there has been a declining trend since then, the levels remain higher than in the past.
An noted, "The actual cost differences (between the costs estimated by insurance companies and the actual costs incurred) due to the flu epidemic in the fourth quarter of last year were one of the factors contributing to insurers' poor performance, and additional actual cost differences in the first quarter will inevitably lead to performance degradation."
The loss rates for automobile insurance also increased by 9.6 percentage points compared to the same period last year, averaging 89.6% for four major insurers including Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, and Hanwha General Insurance in February of this year. An attributed this to the impact of heavy snowfall.
Large-scale wildfires can also be a factor in worsening loss rates. An explained, "The currently estimated affected area is 20,000 hectares, whereas the annual area affected by wildfires in 2022, which was the worst in South Korea, was 24,797 hectares, and the area affected by wildfires in Los Angeles, U.S., at the beginning of the year was about 15,300 hectares. This indicates a significant scale." He added, "While estimates of damages and analyses of the impact on insurers are still premature, it is expected to act as a factor for increasing loss rates."
Shareholder returns anticipated after the settlement of account dividends are also not satisfactory. An commented, "Because the insurance sector does not implement continuous shareholder return policies such as quarterly dividends or share buybacks, it will be difficult to expect momentum for shareholder returns until the annual dividend criteria date in 2025, following the ex-dividend date," and added, "Investor sentiment is expected to worsen."
An stated, "While the direction of the reform in real expenses is positive, there is insufficient social consensus on payment methods, and implementing management salaries is expected to lead to a balloon effect. Therefore, I am revising the investment opinion for the industry downward due to the continued negative environment for fundamentals."
An maintained Samsung Life Insurance as the preferred stock due to the ongoing expectations for governance restructuring following the Financial Services Commission's approval of Samsung Fire & Marine Insurance's subsidiary inclusion.