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The writer is an analyst of NH Investment & Securities. He might be reached at [email protected]. — Ed.
End-1H22 LAT outcomes present internet surplus will increase at most insurers. Moving forward, IFRS17-related results are set to develop.
End-1H22 LAT internet surplus rises at most insurers
End-1H22 legal responsibility adequacy check (LAT) outcomes present internet surplus will increase at most insurers in comparison with their end-2021 numbers. On common, internet surplus upped 22% on the 5 non-life insurers and 123% on the 4 life insurers beneath our protection.
We primarily attribute this LAT internet surplus progress to rate of interest hikes. The skyrocketing in rates of interest in 1H22 (+164bp for 5yr KTB yield) has relieved legal responsibility burden at insurers, particularly life insurers.
Given LAT internet surplus progress, valuations look interesting
We level out that contract service margin (CSM) beneath IFRS17 and LAT internet surplus are conceptually comparable. Accordingly, we are able to use present fairness capital + LAT internet surplus to acquire a glimpse of what insurers’ fairness capital + CSM will appear like beneath IFRS17.
Equity capital + LAT internet surplus (P/(BV+LAT internet surplus) is under 0.4x for all the insurers beneath our protection, with the determine standing under 0.2x at Hyundai M&F, Hanwha General Insurance, Hanwha Life, Tongyang Life, and Mirae Asset Life.
We imagine that: 1) the lately favorable business setting (larger rates of interest, improved threat loss ratios and retention ratios) for insurers will assist enhance their EV after the introduction of IFRS17; and a couple of) insurers’ valuations are interesting when checking the LAT outcomes. Recent earnings releases make non-life insurers’ shares enticing, and life insurers are anticipated to point out more healthy monetary statements following IFRS17.
