Asia Korea
Banking/Finance Insurance
14 November 2008
Korea Insurance
Strong balance sheets save in
turbulent time
Francis Yim
Research Analyst
(82) 2 316 8903
francis.yim@db.com
Scott Lee, CPA
Research Analyst
(82) 2 316 8908
scott.lee@db.com
Sin-Young Park
Research Associate
(82) 2 316 8909
sin-young.park@db.com
Buy Samsung F&M, premium play in crisis time
Korea insurance is an attractive sector as share prices have declined excessively.
In a worst-case scenario, earnings from strong insurance business should be
enough to offset the investment losses. New business & premium growth are
strong due to increasing demand in health protection. Samsung F&M has
maintained a 75% PB prem over the industry during crisis periods due to its
resilient earnings & strong balance sheet. The passage of deregulation bills,
forming a holding co and falling corporate bond rates should boost share prices.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from
local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment decision. Independent, third-party research (IR) on certain
companies covered by DBSI's research is available to customers of DBSI in the United States at no cost. Customers can
access IR at http://gm.db.com or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Forecast change
Top picks
Samsung F&M (000810.KS),KRW200,500.00 Buy
Companies featured
Samsung F&M (000810.KS),KRW200,500.00 Buy
2008A 2009E 2010E
P/E (x) 17.0 13.8 13.5
Price/book (x) 2.78 2.85 2.50
Yield (net) (%) 1.5 1.6 1.6
Dongbu Insurance (005830.KS),KRW15,000.00 Buy
2008A 2009E 2010E
P/E (x) 8.3 3.3 3.1
Price/book (x) 2.86 1.20 0.94
Yield (net) (%) 1.5 5.4 5.8
Hyundai M&F (001450.KS),KRW13,400.00 Buy
2008A 2009E 2010E
P/E (x) 7.6 4.2 4.4
Price/book (x) 2.54 1.51 1.23
Yield (net) (%) 3.2 5.2 5.0
LIG Insurance (002550.KS),KRW12,000.00 Buy
2008A 2009E 2010E
P/E (x) 8.7 4.0 4.1
Price/book (x) 1.86 1.11 0.93
Yield (net) (%) 2.3 4.5 4.4
Meritz F&M (000060.KS),KRW4,665.00 Hold
2008A 2009E 2010E
P/E (x) 10.5 5.4 5.1
Price/book (x) 2.23 1.56 1.30
Yield (net) (%) 2.4 4.1 4.3
Global Markets Research Company
Corporate failure risks are overplayed
Insurance share prices have fallen mainly on concerns over possible corporate
failures. However, 47-59% of insurers’ assets are risk free and just 25-30% is
corporate exposure (bonds and loans). In the worst-case scenario, assuming 6%
losses on corporate exposure, insurance ROEs would still be 5-13% (down from
15-25%). The historical high corporate failure rate is 6%. Insurance companies are
riding a strong upcycle of insurance profitability due to maturing legacy policies
and increasing demand for health protection and wealth accumulation products.
Falling rates – a positive for insurers’ earnings
If the market rates fall 2.0ppt over the next year, asset yields will decline by just
17-20bps, while funding costs will decline 43bps. Korea insurance companies have
a liability-sensitive balance sheet, with 75% floating rate liabilities and only 27-43%
floating rate assets. When market rates fall, funding costs decline faster than asset
yields. In addition, falling KTB and corporate bond rates would increase the value
of bond investments and strengthen shareholders’ equity.
Strong new business and premium growth continue
New businesses have been solid at 14-31% growth since SepQ or DecQ07. Major
insurers have refocused on growth after voluntarily holding back in 2007.
Demands for health protection and wealth accumulation are growing due to an
aging population and lack of social safety net. Although we expect growth to slow
down due to the weak economy, we expect 5-9% new business growth and 10-
14% premium growth in 2009. Even at zero percent new business growth,
premium growth should still be maintained at 9-12% in 2009.
Valuation model change to ROE-g/COE-g model; macro is the key risk
Our previous DCF and EV models do not reflect cyclical share price movements in
different economic cycles. Thus, we have changed our valuation methodology to
the Gordon Growth Model (ROE-g/COE-g) with cost of equity of 10.5-11.8% (the
companies’ 2-year beta, risk free rate 6.4%, risk premium 4.5%), sustainable ROE
of 15-23% and sustainable growth of 3%. We applied 24-45% target PBR
discounts for possible losses from corporate failure. Severe economic recession
and the government’s failure to control credit and lending markets would impair
insurers’ earnings momentum. Rising online channel and cross-selling may pose
additional burdens to costs and profitability.

Table of Contents
New valuation model ........................................................................ 3
Investments exposures ..................................................................... 5
Fixed income investments (bonds, loans and bank deposits) make up 74-83% of total
investments ..............................................................................................................................5
Falling rates........................................................................................ 6
Positive for insurance companies’ earnings..............................................................................6
Assets (investments) yields should decline moderately ...........................................................6
Funding cost should decline faster ...........................................................................................7
Corporate failure risk ........................................................................ 8
The historical corporate default rate reached a 6% high during the 1997 financial crisis..........8
Sensitivity analysis of corporate failure scenarios.....................................................................9
New business growth….................................................................. 11
…is still strong, although the growth rate may decline...........................................................11
Sensitivity analysis: the effect of slowing new business growth on premium growth ..........12
Persistency and surrender .............................................................. 13
Persistency ratios have stayed flat, so far...............................................................................13
Surrender ratios have risen but not at alarming level ..............................................................13
Capital adequacy ............................................................................. 14
Solvency ratios should improve with falling market rates .......................................................14
Investment risks......................................................................................................................15
Samsung F&M ................................................................................. 16
Dongbu Insurance ........................................................................... 24
Hyundai M&F ................................................................................... 32
LIG Insurance ................................................................................... 40
Meritz F&M ...................................................................................... 48

282435.pdf
大小:(1.39 MB)

只需: 500 个论坛币  马上下载