CreditSights has changed its recommendation of Hanwha Life from Market perform to Underperform. According to the research firm, the recommendation attributable to its spread, which is somewhat tight to the Korean banks, and continued pressure on solvency in the face of future rate cuts.
Rise in premiums and income
Despite this, Hanwha Life’s FY2024 results saw a 30% y-o-y rise in total premiums from KRW14.1tn ($9.8bn) in 2023 to KRW18.3tn in 2024. The figures were driven by “protection policies and annuities”, according to CreditSights’ report. It further stated that protection products and aged health insurance were also significant contributors.
Annual premium equivalent (APE) rose 18.2% from KRW3.3tn in 2023 to KRW3.9tn in 2024, as well. Behind the figures, according to the report, protection APE comprised of 81% of the total, and “product mix shifted significantly towards protection policies”.
One-off gains from real estate disposals, valuation gains from bonds and infrastructure assets driven by falling interest rates and rising overseas stock markets meant that investment income also rose significantly, from KRW90bn to KRW391bn, the report showed.
Falling new business CSM and profits
However, Hanwha Life’s new business contractual service margin (CSM) toppled 16.5%, from KRW2.5tn in 2023 to KRW2.1tn in 2024, due to “reduced profit margins from whole-life policies as a result of low interest rates”, the report said. It further stated that overall CSM balance was negatively impacted due to cancellations and losses.
The report also said, “With interest rates expected to continue to decline, we anticipate continued pressure on new business margins, which may be partially mitigated by volume growth.”
Insurance profits took a hit as well, falling 22.2% from KRW651bn in 2023 to KRW506bn in 2024. The reasons for the fall, according to the report, are “decreased CSM amortisation and higher-than expected claims”.
Capital adequacy
Hanwha Life’s K-ICS ratios remained nearly unchanged from June 2024 to December 2024 (June: 162.8%, September: 164.5%, December: 165%), after falling from 183% in December 2023. This fall has been attributed to “falling discount rates and regulatory changes”, said the report. These figures are below the internal target of 175%, the report stated.
According to the report, this fall may be attributed to “falling discount rates, regulatory changes in actuarial assumptions like lapse risk and increased required capital in other risks”.
In 2025, Hanwha Life plans to boost the K-ICS ratio by growing new business CSM likely through volume of new products launch as margin would be affected if there are further rate cuts, using reinsurance for risk coverage and optimising its required capital management model, the report stated. These actions aim to keep the ratio above 170%, though it would still remain below 175%.
Asset and liability management
The duration gap in Hanwha Life’s asset and liability management (ALM) fell from 1.31 years in 2023 to 0.26 years in 2024, “indicating effective management against interest rate risk, with a focus on high-grade, long-term bonds in its portfolio”, the report said.
The future
According to the report, Hanwha Life targets a 15% growth in general protection APE, securing KRW2tn in new business CSM and maintaining a K-ICS ratio above 170% in 2025. The company also anticipates challenges like economic slowdown, market interest rate fluctuations and an ageing population, the report added.
To realise its goals, Hanwha Life “plans to enhance digital capabilities to improve channel efficiency and develop new products beyond cancer insurance, aiming to increase new business CSM to support available capital while optimising its internal risk requirement model”, the report said.