Insurance Sector

Insurance Sector

Non-life insurance: 2Q12’s profit likely weakens. Provision softens, ROI drops
Overall, the non-life insurance industry has been blissful in 2Q13. There has been no massive
disaster e.g. flood or fire, which makes entrepreneurs' insurance claims rise. 2Q13 growth of
premium income is projected to stay unchanged or fall slightly compared to 1Q13 due to
seasonal effect. Normally, non-life insurance premium income reaches the peak in 4Q until 1Q,
and weaken in 2Q and 3Q (total non-life insurance premium income in 2H is usually higher than
1H) as most contact renewal of yearly premium that are due in this period and clients'
purchasing power that will rise in the end of year. For 2Q13, non-life premium income is
projected not to weaken much, as car insurance premium from first car scheme has still been
high from entrepreneurs' car transferring, while other types of insurance premium, especially
fire, transportation and miscellaneous, are likely to weaken. 1Q13 total non-life insurance
premium income in the system reached B51bn, the record high for quarter, increasing by 1.3%
qoq and 20.7% yoy, quite high compared to 2013 total non-life insurance premium income
growth we predicted at 18% yoy (the market predicted at 15% yoy). 1Q13 insurance premium
income with the most significant growth was car insurance premium (59% of total insurance
premium income), rising by 7.2% qoq and 23.7% yoy. Fire insurance premium (6% of total
insurance premium income) rose by 13.4% qoq and 13.8% yoy, while miscellaneous insurance
premium (33% of total insurance premium income) showed 9.5% qoq fall but grew by 18%
yoy. 2Q13 non-life insurance earning result is projected to be unchanged or drop from 1Q13 in
low season. Insurance claims are projected be in downtrend continually for many quarters
because most companies have recorded insurance claims from the flood e.g. BKI, TVI, SCGMG
and NKI. However, another factor that pressed the overall earning result is income from
investment business in equity instrument, which is projected to fall qoq, especially business
that aim for active yield such as TVI that 16% of its total investment money portfolio consists of
investment in equity instrument, and most of it is short term trading. Loss caused by fall in fair
value in short term investment (trading) will reflect through the year's income statement, but if
it is investment portfolio of available-for-sale (AFS) that is the major proportion of investment
money in equity instrument most insurance companies, it will be recorded through to the
bottom of statement of comprehensive income, which greatly subsides effects to the earnings
performance.
- Life insurance: prosperous profit outlook from promising economy
We still hold a positive perspective about 2013 life insurance business, following 2012,
correspondent to perspective about local GDP growth predicted by the Office of the National
Economics and Social Development Plan, recently at 4.2-5.2%. 1Q13 total life insurance
premium income was B108bn, the record high compared to every 1Q, growing by 20.6% yoy,
but shrinking slightly by 4.6% qoq, which is not bad as it was seasonal effect. Normally,
insurance premium weakens in 1Q, and rises gradually and reaches its peak in 4Q due to
supporting government measure that insurance premium can be used for income tax deduction
by B100 thousand/year. 1Q13 insurance premium growth can be split into first year premium
growth by 3.2% qoq and 34% yoy, and renewal year premium growth by 12.9% (but falling by
2.9% qoq), correspondent to TLAA's prediction about whole business' 2013 total premium
income growth of 17.3%, 24.2% yoy for first year premium growth and 13.9% yoy for renewal
year premium growth.
- Top picks are THRE and BKI
We downgrade investment weight of insurance sector from overweight to neutral. We project
2013 earning results of stocks under our coverage (BKI, BLA, THRE) to recover with net profit
at B7.79bn from net loss of B431bn in 2012, and grow continually by 21.9% yoy in 2014,
significant compared to 2013-2014 EPS growth prediction of the market at 23.1% yoy and
10.8% yoy. However, compared to the past, insurance sector share price index from 2013 has
risen by 15.5%, compared to SET that has fallen by 2%, greatly reflecting positive factors. Top
picks are THRE(buy: FV@B8) and BKI(FV@B590), the shares with the most significant
turnaround of net profit in 2013 and interestingly high upside from present share prices.