Insurance sector

Insurance sector

Total premium income makes new high despite weak economy
Based on the total general premium income in June 2014 reported by the Office of
Insurance Commission (OIC), Thailand’s non-life and life insurance businesses in
6M14 has presumably shown good growth from 2013. Gross direct premium income
continued to make a historical high by quarter at B357bn, growing 13.4% from the
same period of last year. Direct life-insurance premium income increased 19.1%yoy,
while direct non-life insurance premium income climbed up only 1.1%yoy. The growth
of premium income is usually consistent with the GDP growth. Most importantly, the
current number of Thai citizens who hold insurance policies is only 6.2% of the GDP
(4.5% for life insurance and 1.7% for non-life insurance), versus 13.9% of Taiwan,
10.1% of Hong Kong, and 7% of South Korea, reflecting potential for significant
growth of total premium income in the long run.

Life insurance, major driver for 2H14
Overall earnings performance of the sector would remain dull in 2H14. All three
companies under over coverage, BLA, THREL, and THRE, are projected to suffer net
loss. Yet, a life insurance business of BLA and THREL would be able to show net profit
growth from 1H14. Particularly, BLA’s net profit in 2H14 would comprise as much as
58% of our FY2014 forecast after it has made substantial premium reserve in 2Q14,
while the capital market uptrend would benefit BLA’s proprietary portfolio in 2H14.

Buy BLA and BKI. Hold THREL
We upgrade our recommendation for BLA (FV@B73 after XD) from hold to receive
dividend to buy because the share price has undergone correction until it implies a
total upside of 22% (dividend yield included). We select BLA as a top pick of the
sector instead of THREL ([email protected]) for which we downgrade our recommendation
from buy to hold for dividend since the price is already fully valued. BKI
([email protected]) is still a top pick of a non-life insurance sector for its strong financial
status, growing portfolio during the capital market uptrend, and regular dividend
payment.