Major insurance companies are expected to see a slowdown in their third-quarter performance due to poor investment returns. Recently, long-term bond yields have reached their highest levels in nearly four years, increasing the valuation burden on the bonds held by these insurers.
According to FnGuide on October 14, the consensus for Samsung Fire & Marine Insurance's net profit in the third quarter is projected at 538.5 billion won, an increase of 11.53% compared to the same period last year.
However, ahead of next month's earnings announcement, analysts predict that Samsung Fire's net profit may fall short of market expectations. They estimate that investment returns could decline by 20% to 30% year-on-year, putting pressure on overall performance.
Insurance companies, including Samsung Fire, invest funds secured from premiums in long-term bonds. With market interest rates rising rapidly, the yield on 10-year government bonds has increased by over 80 basis points this year. On September 15, it surged to 4.600%, marking the highest level in nearly three years and 11 months since October 2022.
While rising interest rates present an opportunity for higher yields on new bond investments, they also decrease the valuation of existing bonds. Insurers with a high proportion of long-term bonds may face increased asset management burdens.
From a liquidity perspective, the cancellation of insurance contracts and margin settlements for derivatives could pose short-term challenges. A financial industry official noted, "As interest rates rise, the savings rates on products like savings insurance may increase more quickly than the declared rates on insurance contracts, leading to short-term liquidity pressures from contract cancellations."
In contrast to investment returns, Samsung Fire's insurance profit is expected to rise by about 9% compared to the same period last year. Improvements in the auto insurance sector and a decrease in the loss ratio for health insurance are anticipated to have a positive impact. However, general insurance is expected to see a decline in profitability due to increased loss ratios from high-cost claims, and long-term insurance is projected to struggle due to rising business costs and decreased profits from contract margins.
Life insurance companies are also expected to report lower net profits in the third quarter compared to the previous year. Samsung Life's projected net profit is 676.8 billion won, down 11.06% year-on-year. Hanwha Life's controlling shareholder net profit is expected to be 280.1 billion won, a decrease of 8.9%, while Mirae Asset Life's net profit is projected to fall by 4.62% to 47.5 billion won.
* This article has been translated by AI.
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