Meritz Securities announced on August 13 that Hanwha Life's second-quarter net profit significantly exceeded market expectations, prompting the firm to raise its target price from 5,500 won to 6,200 won while maintaining a 'buy' rating.
Jo Ah-hae, a researcher at Meritz Securities, stated, "Considering the rise in interest rates, strong growth in new contract service margin (CSM), and the improving actual-to-expected insurance flow since the third quarter of last year, we expect a favorable trend in insurance profits to continue."
For the second quarter of this year, Hanwha Life reported a standalone net profit of 262.4 billion won, a 354.6% increase compared to the same period last year, surpassing market expectations by 68%.
The CSM for the second quarter was 8.9 trillion won, reflecting a 0.1% increase from the previous quarter. Jo noted, "Although the CSM adjustment amount decreased by 270 billion won due to the application of actuarial assumption guidelines, the regular CSM flow was managed stably due to improved contract retention rates."
The retention rate for 25th contracts rose to 78%, up from 77% in the first quarter and 72% in the fourth quarter of last year. The CSM for new contracts also increased by 12.8% compared to the previous quarter.
Insurance profits rose by 210.5% year-on-year. The actual-to-expected insurance difference, which indicates the gap between actual and expected insurance payouts, improved steadily from a negative 126.4 billion won in the third quarter of last year to negative 116.1 billion won in the fourth quarter, negative 91.9 billion won in the first quarter, and negative 55.7 billion won in the second quarter.
The easing of loss contract burdens due to the application of actuarial assumption guidelines also contributed to the results. Other insurance profits amounted to 49.3 billion won, compared to a loss of 123.4 billion won during the same period last year.
As a result, Meritz Securities forecasts that Hanwha Life's new contract CSM will increase by 3.3% year-on-year, with net profit expected to rise by approximately 80% during the same period.
However, uncertainty regarding distributable profits due to the burden of surrender reserve funds remains a variable. Jo acknowledged, "There is still uncertainty regarding distributable profits, but given that consolidated profits for the first half increased by 96.0% year-on-year, there is potential for relief from this burden due to future regulatory improvements."
* This article has been translated by AI.
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