Insurance stocks are rallying on South Korea's stock market as the yield on the U.S. 30-year Treasury bond topped 5.3%, its highest level in 19 years. Investors are turning to insurers on expectations that prolonged high interest rates will boost investment returns, alongside hopes for strong earnings and expanded dividends.
According to the Korea Exchange, Hyundai Marine & Fire Insurance jumped 9.59% from the previous session on the 18th, hitting a 52-week high. Samsung Life Insurance also rose 3.16%, while other major insurers gained across the board, including DB Insurance (up 2.94%), Samsung Fire & Marine Insurance (up 1.79%), Hanwha General Insurance (up 0.43%) and Meritz Financial Group (up 0.43%).
Hyundai Marine in particular widened its gains as sector-wide strength combined with strong second-quarter earnings and hopes for a resumption of dividends. Successive target-price upgrades by brokerages following the company's earnings release are seen as having spurred buying.
KB Securities said Hyundai Marine's second-quarter results beat expectations and raised its target price to 65,000 won from 46,000 won.
"Hyundai Marine's second-quarter net profit exceeded the consensus by 46%, reflecting the reversal of about 90 billion won [about $65 million] in onerous-contract costs, solid investment gains and continued improvement in the gap between expected and actual claims," said Kang Seung-gun, an analyst at KB Securities.
Shinhan Securities also raised its target price for Hyundai Marine to 63,000 won, saying the company "posted an earnings surprise on the reversal of onerous contracts and an improved claims gap, securing visibility for a resumption of dividends."
Behind the inflow of buying into insurers is the rise in long-term government bond yields. On the 17th, local time, the yield on the U.S. 30-year Treasury bond climbed above 5.3%, its highest level in 19 years.
The market points to insurers as a prime beneficiary of rising long-term rates. Insurers invest the premiums they collect from customers in long-term and ultra-long-term bonds to generate investment returns. The longer rates stay high, the higher the yields on bonds they buy anew or reinvest as holdings mature, supporting expectations of improved returns on invested assets over the medium to long term.
Rising rates also affect insurers' capital soundness. Samsung Securities recently estimated that a 100-basis-point rise in rates (one basis point equals 0.01 percentage point) would have the most positive effect on capital at Hyundai Marine, at 8%, followed by Samsung Life at 6% and Hanwha Life at 5%.
As a result, analysts expect investor interest in insurance stocks to continue if long-term rates stay elevated, as prospects for stronger investment returns and improved capital headroom converge.
