Insurers Breathe a Sigh of Relief as Auto Insurance Loss Ratios Decline

Top 5 Companies' 3Q Cumulative Net Profit 1.89 Trillion Won... Up 18% YoY
Vehicle Usage Declined Due to COVID-19... Loss Ratio Expected to Decrease Further in 4Q

On the 22nd, 119 rescue team members participating in the 'Training to Strengthen Traffic Accident Rescue Capabilities' held at Umyeon 119 Safety Center in Seocho-gu, Seoul, are conducting a rescue training for an injured person trapped under a completely overturned passenger car. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Oh Hyung-gil] Last year, non-life insurance companies that suffered from high loss ratios in automobile insurance are now smiling this year. Although their performance was poor last year due to the worst loss ratio on record, the situation has reversed this year as the loss ratio stabilized.

According to the insurance industry on the 17th, the cumulative net profit of the top five domestic non-life insurance companies in the third quarter reached 1.8984 trillion won, an increase of about 18.7% compared to 1.5982 trillion won in the same period last year.

Samsung Fire & Marine Insurance recorded a net profit of 628.9 billion won, increasing by only 7.4% compared to last year, but it significantly outpaced other non-life insurers in scale. DB Insurance’s net profit grew by 34.5%, from 329.7 billion won last year to 442 billion won this year. Hyundai Marine & Fire Insurance also increased by 33.2%, from 236.1 billion won last year to 314.7 billion won.

Meritz Fire & Marine Insurance, which recorded a net profit of 212.7 billion won last year, saw a remarkable growth rate of 52.1% this year, reaching 323.5 billion won. On the other hand, KB Insurance’s net profit fell by 20.2%, from 233.9 billion won last year to 186.6 billion won.

The reason for the increase in net profit is mainly attributed to the decrease in automobile insurance loss ratios, according to the non-life insurers.

Due to the impact of the novel coronavirus disease (COVID-19), vehicle movement decreased and hospital visits were avoided, leading to a reduction in insurance payouts. Although there were concerns that the loss ratio would surge due to flood damage caused by concentrated heavy rains in the summer, the situation turned out better than expected.

In the case of Samsung Fire & Marine Insurance, the combined ratio (loss ratio + expense ratio), which measures insurance business efficiency, fell by 0.6 percentage points from the previous year to 104.3%. Looking at the loss ratios by category, long-term insurance dropped by 1.2 percentage points to 82.2%, and automobile insurance decreased by 3.3 percentage points to 84.8%. General insurance rose by 6.8 percentage points to 81.6% due to an increase in large claims and natural disasters.

With the quarantine authorities raising the social distancing level in the metropolitan area to level 1.5 amid signs of COVID-19 resurgence, there are expectations that the automobile insurance loss ratio will decrease further in the fourth quarter. The automobile insurance loss ratios of Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, and KB Insurance last month (preliminary closing) ranged from 84.0% to 86.3%, dropping more than 10 percentage points compared to the same period last year.

Samsung Fire & Marine Insurance’s loss ratio was 86.3%, down 10.8 percentage points from 97.1% last year, and Hyundai Marine & Fire Insurance improved by 12.9 percentage points to 84.0% from 96.9% in the same period last year. DB Insurance also decreased by 12.3 percentage points to 85.5% from 97.8% last year. KB Insurance’s loss ratio fell by 13.9 percentage points to 85.0% compared to last year.

However, the non-life insurance industry pointed out that the loss ratio is still high compared to the appropriate automobile insurance loss ratio (78?80%) and that the deficit structure has not yet been overcome. A non-life insurance industry official said, "Although the automobile insurance loss ratio is improving due to the impact of COVID-19, it is not a situation to be complacent about," adding, "How the loss ratio will change at the end of the year depends on the impact of heavy snowfall and cold waves in winter."