Daishin Securities Co. said on the 17th that although the insurance sector is weak, DB Insurance is expected to have the greatest potential for relative improvement among peers. It maintained its Buy rating and raised the target price by 13% to 136,000 won from 120,000 won. DB Insurance's previous day's closing price was 132,400 won.
DB Insurance posted a net profit of 293.0 billion won in the third quarter this year, down 35.4% from a year earlier. It also missed the consensus (404.5 billion won) by 27.6%.
Park Hye-jin, an analyst at Daishin Securities Co., said the earnings miss was due to an expanded actual-versus-expected loss and a swing to a loss in auto insurance profit and loss.
Looking at insurers that released results earlier, the risk loss ratio rose, leading to 150.0 billion won in actual-versus-expected claims losses, the analyst noted.
Park said, "The gap is large even compared with competitors," adding, "This is because the incurred but not reported (IBNR) liability reflection in the quarter was so large." The explanation was that the expansion of the actual-versus-expected loss in the third quarter was more heavily influenced by one-off factors related to IBNR provisioning.
DB Insurance's loss ratio has been rising by a wider margin each quarter this year. Park added, "IBNR is also provisioned in proportion to this."
However, this trend is expected to ease from the fourth quarter. Park explained that DB Insurance plans to implement significant premium hikes limited to coverage such as disease surgery riders and liability coverage, where claim filings are surging, through an experience rate adjustment in October, and therefore the trend is expected to ease from the fourth quarter.
Meanwhile, new contracts related to the contractual service margin (CSM) came to 724.0 billion won, down 6.7% from a year earlier. Park said that while CSM top-line growth from new contracts is likely to continue, insurance underwriting profit is expected to remain weak.