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Photo = Yonhap news |
[Alpha Biz= Reporter Kim Sangjin] Daishin Securities maintained its "Buy" rating and target price of 120,000 KRW for Meritz Financial Group (138040) on December 5, citing that the company's value will become more prominent amid an expanding volatile environment.
Daishin Securities explained, "Given the cancellation rate assumptions based on the log-linear principle model suggested by the Financial Supervisory Service, we expect a minimal reduction in the year-end insurance contract margin (CSM)." The company expects a decrease of up to 200 billion KRW.
However, Daishin Securities noted that there would be adjustments related to actual vs. expected results. As of the third quarter, cumulative gains from actual performance were 342 billion KRW, and while the company initially aimed to manage the deviation between expectations and actual results within 5-6%, this ratio is expected to widen to 10% by 2024. As a result, Daishin expects changes in year-end loss ratio assumptions (with the cumulative loss ratio falling by 5 percentage points compared to internal estimates), which would lead to a reduction in insurance liabilities (BEL) and an increase in CSM. Taking both positive and negative factors into account, they forecast that CSM will remain unchanged by year-end.
Looking ahead to next year, Daishin Securities noted that due to changes in assumptions for new contracts, CSM ratios are expected to fall, which could prompt most insurers to consider raising premiums. However, they expect Meritz Financial Group not to adjust its premiums as it is already higher than competitors.
Daishin also predicts that long-term insurance profits for most insurers will decrease next year, but Meritz Financial Group should be able to maintain its current performance level. They added, "However, the impact of age-based loss ratio assumptions is expected to be significant, and because changes to the overall liability structure will be reflected in April, Meritz plans to establish strategies for new contracts thereafter."
Alphabiz Reporter Kim SangJin(letyou@alphabiz.co.kr)
