We stress test individual stocks to
determine the variance between market
perception and fundamentals
􀀗 In a number of cases perception has
overcome reality, but others have still to
catch up with reality
􀀗 Attainable value in China; Japanese
stock prices most at risk; currency a
barrier to emerging value in Korea
A reality check
Stock markets globally have plunged over lack of liquidity
and economic slowdown. The fall has been indiscriminate,
regardless of economic, company or industry fundamentals.
Fear has caused investors to stay on the sidelines or give up
their conviction. We are in extraordinary times. Although
fundamentally based conviction may not work, we make no
change to our forecasts in this period of volatility and
uncertainty. Rather, we stress test the major insurance stocks
under our coverage to determine the extent to which
perception has parted company with fundamentals. The key
factors we look at include risk discount rate, long-term
growth, mark to market equity change and investment return.
China: Life stocks are valued at embedded value and hence
are sensitive to growth and risk discount rate, rather than
mark to market. Given the sharp correction, current prices
already reflect a slowdown in growth and increase in risk.
Japan: The P&C stocks are valued on PB multiple and we
expect valuations to get smashed by mark to market equity
loss when 1H results are reported next month. The
companies will have realised the extent of the equity
mismatch risk on their balance sheets.
Korea: The stocks are valued by residual income and hence
little mark to market impact in a single year. Instead, risk
perception and long-term investment returns matter. A
difficult macro environment and depreciating currency are
major issues for overseas investors despite emerging value.

目录

Investment summary 5
Nothing to fear but fear itself? 5
Findings of our reality check 5
China 5
Japan 6
Korea 7
Testing in times of stress 10
It’s credit, not equity 10
Life business 10
P&C business 11
Valuation sensitivities more driven by the credit market 11
Darkest before dawn? 12
Macroeconomic background 13
From fear to growth 13
Falling GDP growth will impact insurers 14
China 19
Investment performance 19
Sensitivity 20
Mark to market adjustments 20
Long-term investment yield 21
Risk discount rate 21
Long-term growth 22
Persistency 22
Combined ratio 22
Solvency 22
Japan 24
Investment performance 24
Sensitivity 25
Mark to market adjustments 25
Premium growth 26
Combined ratio 26
Persistency 27
Solvency 27
Risk discount rate 27
Korea 28
Investment performance 28
Sensitivity 29
Premium growth 29
Combined ratio 29
Investment return 29
Solvency 30
Risk discount rate 31
Disclosure appendix 32
Disclaimer 35
Contents

[此贴子已经被作者于2009-1-27 12:04:20编辑过]