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Samsung Life: 1Q22 Preview: Weakness in Variable Insurance Guarantees

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The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. — Ed.

Maintain BUY but lower TP by 6.8% to KRW82,000

Despite lowering our TP by 6.8% to KRW82,000, we maintain BUY on Samsung Life as the company has: (1) less uncertainty over capital power (ie, a relatively higher RBC ratio than competitors), even when interest rates are increasing; and (2) relatively greater room for gains from asset disposals for 2022E given the conservative amount booked last year due to special dividend income from Samsung Electronics. Our revised TP is based on 12m fwd BVPS of KRW211,636 and target multiple of 0.39x (sustainable ROE: 3.8%, COE: 5.9%, TGR: 2.4%→2.5%); target multiple has been lowered from 0.42x to 0.39x on an increase in TGR, but sustainable ROE remains unchanged.

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2022E consolidated NP (attributable to control. int.) revised down by 1.5% to KRW1.3tn

We have revised down 2022E consolidated NP (attributable to controlling interests) by 1.5% to KRW1.26tn given weak profits for variable insurance guarantees in 1Q22. The aforementioned room for asset disposal gains should be beneficial, however.

1Q22E consolidated NP of KRW345.2bn, 10.5% below consensus

We estimate 1Q22 consolidated NP (attributable to control. int.) at KRW345.2bn (-68.3% YoY), 10.5% below consensus due to a bearish KOSPI market, rising interest rates, and a KRW100.0bn decline in profits for variable insurance guarantees (assuming end-Mar KOSPI of 2,700pts and a 60bp rise in 10y KTB yield). The 68.3% YoY slump should be due to an unfavorable comparison base (KRW802.0bn in special dividends, KRW83.0bn in gains from fund disposal, a KRW36.0bn reversal in variable guarantee reserves). Underwriting profit should fall 4.4% YoY to KRW363.4bn. Mortality profit should rise 11.4%, but loading profit should decline 14.8%. Protection-type new contract APE should climb 3.5% YoY, a recovery in whole-life/CI segments.



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