Insurance Stocks Rally: Why Markets Are Focusing on Governance Reforms and Shareholder Returns

A New Driver for Insurance Stocks: Corporate Governance Reform

Insurance stocks have shown a distinct upward trend in the domestic market recently. While past rallies in the insurance sector were largely driven by 'core business growth' such as increased interest income from rate hikes or falling loss ratios, the current rally shows a different pattern. The key drivers the market is currently focusing on are corporate governance reforms and changes in capital policies of individual companies.

For instance, Samsung Life Insurance is seeing its stock price driven by the re-evaluation of its massive stake in Samsung Electronics and the anticipation of special dividends. Hanwha Life and Hanwha General Insurance are also gaining attention due to the potential expansion of financial affiliates' roles amid the group's broader corporate governance restructuring. This indicates that investors are placing more value on the realization of asset values and improvements in management efficiency, rather than merely looking at operating profit margins.

Dividend Uncertainty Post-IFRS17 and the Value-Up Momentum

Insurance stocks have traditionally been classified as classic dividend-paying stocks. However, following the recent implementation of IFRS17 (the new international accounting standard), actual shareholder returns have frequently fallen short of expectations, even when companies reported record-high net profits.

• Burden of Cancellation Refund Reserves: Due to requirements mandated by financial authorities to accumulate cancellation refund reserves for long-term profitability and financial soundness, book profits have not fully translated into actual distributable income.

Expectations for Regulatory Improvements: In alignment with the government's 'Corporate Value-Up Program', financial authorities are currently reviewing plans to rationalize the reserve accumulation standards. If this system is improved, the capacity for previously locked surplus capital to be distributed as shareholder returns will expand significantly.

In fact, in step with discussions on amending the Commercial Act and corporate value enhancement disclosures, numerous insurance companies are announcing specific plans to strengthen shareholder returns, such as share buybacks and cancellations, and raising dividend payout ratios, acting as a strong upward momentum for stock prices.

Investment Strategy: Focus on 'Individual Events' Over Sector Trends

At this juncture, rather than a top-down approach expecting a re-rating of the entire insurance sector, a bottom-up strategy that closely analyzes the situation of individual companies is required.

It is necessary to select companies with different catalysts, such as stocks heavily linked to the value of Samsung Electronics shares or those facing increased pressure for shareholder returns due to the intervention of activist funds. Especially as regulatory uncertainties related to IFRS17 are expected to resolve and enter a full-fledged structural transition period starting between 2026 and 2027, it is reasonable to use each company's long-term capital allocation strategy and willingness to improve corporate governance as a measure, rather than focusing on short-term earnings volatility.