Customers consulting at the window of Hyundai Marine & Marine Engineering's headquarters building.  (Maekyung DB)

Insurance stocks the only beneficiary of rate hike?

Customers consulting at the window of Hyundai Marine & Marine Engineering’s headquarters building. (Maekyung DB)

Insurance stocks were strong in the domestic stock market as the US central bank, the Federal Reserve (Fed), hinted at a steep rate hike.

At 2:27 pm on April 22, Hyundai Marine & Marine Insurance is trading at 33,600 won, up 4.35% from the previous trading day. The stock has maintained an upward trend, rising to 5.9% during the day. At the same time, DB Insurance (4.02%), Lotte Insurance (2.7%), Samsung Fire & Marine Insurance (2.38%), and Hanwha General Insurance (2.69%) are also on the rise.

The rise in insurance stocks is believed to have been driven by expectations of a US interest rate hike. At the International Monetary Fund (IMF) meeting on April 21 (local time), Federal Reserve Chairman Jerome Powell said, “It would be appropriate to accelerate the pace of the Fed’s rate hike policy.” “The rate hike will be considered at the FOMC (Federal Open Market Committee) regular meeting in May,” he said.

The Fed is expected to take several big steps during the remaining six FOMC regular meetings, including the May meeting, as Chairman Powell directly hinted at the possibility of a ‘big step’ hike in raising the benchmark interest rate by 0.5 percentage points at a time. . A big step is a higher-than-usual rate hike, which is considered a steep tightening signal.

Insurance stocks are usually viewed as beneficiaries of interest rate hikes. This is because if bond interest rates rise in response to a base rate hike, this will directly lead to insurance companies’ management and evaluation profits. Insurers do not hold the insurance money received from customers in cash, but invest in stable bonds or stocks, so an increase in interest rates will lead to an increase in the asset value of insurance companies that invest heavily in bonds.

The stock market is also optimistic about the outlook for insurance stocks in the future. In the first quarter of this year, the combined operating profit of the five non-life insurance companies (Samsung Fire & Marine Insurance, DB Non-life Insurance, Hyundai Marine & Marine, Meritz Fire & Marine Insurance, and Hanwha General Insurance) increased by 16.2% year-on-year to KRW 1.5 trillion, and net profit increased by 14.2%. estimated at 1 trillion won. This also reflects the effect of a decrease in the external accident rate, medical use rate, and number of insurance payments due to the increase in quarantined persons due to the spread of COVID-19.

Heeyeon Lim, an analyst at Shinhan Financial Investment, said, “If the loss ratio flow and interest rates continue to rise above expectations, it is highly likely that the share price rise in the insurance industry will continue for the time being.”

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