'Thousands of Vehicles Flooded by Water Bomb' Insurance Stocks Warn of Poor Earnings... Waste Disposal and Rental Car Sectors Gain 'Reflected Benefits'

[Asia Economy Reporter Lee Seon-ae] As record-breaking heavy rains poured mainly over Seoul and the metropolitan area, causing a series of damages, related stocks in the stock market are showing mixed reactions. With a sharp increase in car flood damage, it is inevitable that the quarterly earnings of non-life insurance companies will be affected. The market has already reflected this, with non-life insurance-related stocks showing a unified decline since the previous day. On the other hand, stocks related to car rentals and waste disposal, which are expected to benefit indirectly, have risen.

As of 9:10 a.m. on the 10th, DB Insurance (-1.10%), Lotte Insurance (-0.57%), Hyundai Marine & Fire Insurance (-0.89%), Hanwha General Insurance (-2.07%), and Samsung Fire & Marine Insurance (-0.73%) all showed a downward trend. On the previous day, Lotte Insurance closed at 1,740 won, down 1.97%, while DB Insurance (-1.85%), Hanwha General Insurance (-1.17%), and Hyundai Marine & Fire Insurance (-0.88%) also ended lower.

Researcher Kang Seung-geon of KB Securities said, "Insurance payouts due to flood damage are expected to increase," adding, "Considering that the loss ratio of auto insurance has remained excellent with a low loss increase rate since the spread of COVID-19, it is inevitable that the third-quarter earnings of non-life insurers will be affected." Due to the disappearance of the premium increase effect in 2019 and 2020 and the premium reduction in 2022, the growth rate of auto insurance premiums has decreased, and the auto insurance loss ratio in the third quarter is expected to rise compared to the same period last year. It is judged that the loss ratio increase will be greater than previously forecast due to this heavy rain.

Additionally, the fact that the flood accidents mainly occurred in the southeastern region of Seoul is also a burden. It is a high-income area with relatively many high-priced vehicles. By the afternoon of the previous day, the number of flooded vehicles reported to the top four insurance companies approached 5,000, with an estimated 1,000 being imported cars. This greatly increases the possibility of a higher loss ratio for insurers. The loss ratio is the proportion of insurance payouts to premiums paid by customers, and the higher this ratio, the lower the insurer's profit.

Researcher Kang said, "In 2011, there was a case where flood damage to cars surged due to heavy rain concentrated in Gangnam. At that time, the second-ranked non-life insurer reflected an increase in related insurance payouts of about 5 to 6 billion won, and Samsung Fire & Marine Insurance about 10 billion won in the loss ratio," adding, "Considering that additional flood damage may occur, if non-life insurers reflect losses up to the XOL (Excess of Loss) limit, it is estimated that the third-quarter auto insurance loss ratio will be affected by 0.7 percentage points for the second-ranked insurer and 1.0 percentage point for Samsung Fire & Marine Insurance. On an annual basis, the loss ratio is expected to rise by about 0.2 percentage points."

On the other hand, industries expected to benefit have already seen stock price reactions. Due to the heavy rain, related work such as waste disposal is expected to increase, benefiting waste disposal-related stocks, stocks related to rebuilding damaged facilities or disinfection, and car rental-related stocks.

Waste disposal-related stocks such as Zenen Bio and KG ETS recorded gains of 1.35% and 0.65%, respectively, as of 9:15 a.m. that day. On the previous day, only Zenen Bio closed up 1.61%, while KG ETS closed flat. However, Inseon ENT showed a 0.10% decline after a sharp 7.12% rise the previous day. Special Construction, a company specializing in underground railway and road crossing structures, continued its 1.0% rise after closing up 3.82% the previous day. Nature and Environment, an environmental ecological restoration company, recorded a sharp 11.99% rise after closing up 1.61% the previous day.

The strong performance of used car platform companies was also notable the previous day. This is interpreted as demand for car rentals expanding as the number of flooded vehicles increases. On the previous day, K Car closed at 22,650 won, up 6.34%. K Car has been operating a flood car compensation system since last month. SK Rent-a-Car and Lotte Rental also rose 3.88% and 2.65%, respectively. However, as of 9:25 a.m. that day, profit-taking sales following the previous day's gains caused Lotte Rental and K Car to fall 0.52% and 1.1%, respectively. Only SK Rent-a-Car showed a 0.57% rise.