SEOUL, KOREA - LIG Insurance (LIG) announced FY12 (end Mar) 4Q NP of –W15.1bn, with FY12 NP of W164.4bn, falling short of the FY12 target of W288bn. 4QFY12 NP fell on: 1) a W46bn loss from changes in the standard for available-for-sale (AFS) securities impairment losses, and 2) W25bn in additional amortization costs related to the sale of protection-type insurance.
In addition, only LT insurance risk loss ratio fell as loss ratios for P&C, LT and auto line rose, weighing on earnings.
- (1) RBC ratio fell to 177%, the lowest in our universe, prompting the highest discount rate in its valuation process. The inclusion of negative interest rate margin risk reduced the ratio 6%p QoQ. (2) Protection type margins fell sharply. Personal insurance fell 3.7%p YoY to 7.8%. Management’s explanation is similar to that of Dongbu Ins.
- We maintain our TP of W31,000. As this offers an upside of 30% (as of May 24), we also maintain BUY. Our TP equates to 1.24x trailing BVPS, assuming a three-year average ROE of 15%, a relatively high discount rate of 12.3% reflecting the need for equity expansion from the RBC burden (except for Samsung F&M, the lowest discount rates in our universe are Dongbu Ins’ 11,0% and Hyundai M&F’s 11.7%) and 0% sustainable growth.
*Source: Korea Investment & Securities Co.
