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Rosy earnings outlook for Korean Re in 2016

2016.06.14 16:18:57 | 2016.06.14 16:19:25
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Korean Reinsurance Co. (Korean Re), a Korea’s sole reinsurer, is expected to see its net profit for this year hit a new high on growing demand for its reinsurance packages from top insurance companies.

An unnamed Korean Re official in charge of investor relations (IR) said on Monday that the company forecasts that its net profit for 2016 would reach 190 billion won ($162.1 million), up 1.9 percent from last year’s 186.5 billion won. The official expected that the actual bottom line would be higher than the company’s estimate considered a “reasonably conservative” figure.

Korean Re has been seeing an increase in the number of new contracts with top insurers after Standard & Poor’s raised its credit rating by one notch to A from A- in 2014. S&P hiked the rating two years ago when Korean Re successfully increased capital by issuing $200 million worth hybrid securities for the first time.

The IR official said new reinsurance coverage orders from insurers at home and abroad poured in after the rating upgrade.

Despite the rosy outlook, its stocks have been weighed down by lingering uncertainty over the nature of reinsurance business. Reinsurers like Korean Re are highly vulnerable to losses from natural disasters that could cause massive losses to insurance companies, clients of reinsurance companies. The company’s shares ended at 12,900 won on Tuesday, up 0.4 percent from the previous session, but down 14 percent from its 52-week high of 15,050 won.

Lee Nam-seok, an analyst at KTB Investment and Securities Co., said that damages that should be covered from the Japanese earthquake in April has not been reflected in Korean Re’s earnings and that it would be difficult for its stock prices to rebound unless such uncertainty is lifted.

Korean Re, meanwhile, has been putting out efforts to reduce volatility in earnings by reinforcing its insurance contract with a re-reinsurance firm. The new contract has increased the maximum insurance coverage for Korean Re. For example, if an accident occurs in China and Korean Re is required to pay for the damages incurred by an insurance firm, it will be able to receive maximum $240 million from its own insurer starting this year, up from $100 million five years ago.

Analysts note that there is a potential for Korean Re’s stock prices to rally considering its lower valuation compared to overseas peers. Its price to book ratio (PBR) is 0.73 while that of others hover at above 1.0. When it comes to dividend payouts, Korean Re paid 21.6 percent of earnings to shareholders. Its dividend yield per share was 2.5 percent.

The Korean Re IR official said that this year’s dividend payouts will be similar to last year’s level, hinting that they could reach the highest amount based on the record net profit estimated this year.

By Yong Hwan-jin

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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