[1mm Financial Talk] Will Insurers Compensate 1.7 Trillion Won for Hankook Tire Fire?

Insurance Coverage Amount 1.7 Trillion Won but 'Compensation' Differs
Compensation Limit for the Contract is 300 Billion Won
Reinsurance Subscribed to Distribute Insurance Payment Burden

A large fire broke out at the Daejeon factory of Hankook Tire & Technology (Hankook Tire), resulting in insurance companies having to pay out substantial compensation. Although Hankook Tire's insured amount is 1.7031 trillion KRW, it is expected that this will not significantly impact the performance of the insurance companies involved. This is because there is a cap on the insurance payout, and even that can be compensated through reinsurance.

According to industry sources on the 14th, a fire occurred on the 12th at Hankook Tire's Daejeon Plant 2 in Moksang-dong, Daedeok-gu, Daejeon, completely destroying approximately 87,000 square meters of the factory. All 400,000 tire products stored in the logistics building of Plant 2 were also burned. The fire authorities estimate the damage at around 6 billion KRW, but with production halted not only at Plant 2 but also at Plant 1, the actual damage is expected to be much greater. Since Hankook Tire has comprehensive property insurance, the insurance companies will inevitably have to pay large insurance claims. A representative from KB Insurance, the lead insurer for Hankook Tire's comprehensive property insurance, stated, "Damage worth several hundred billion KRW is expected, but the exact amount needs to be confirmed."

However, the impact on the insurers' financial results is expected to be limited. The day before, Hankook Tire announced that it had subscribed to comprehensive property insurance worth 1.7031 trillion KRW with KB Insurance, Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, and DB Insurance. However, this figure represents the 'insured amount,' not the insurance payout. Typically, the payout is calculated as 'damage amount × insured amount / insurance value (property appraisal value).' For example, if a building with an insurance value of 10 billion KRW is damaged by 2 billion KRW and the insured amount is 5 billion KRW, the insurance payout would be limited to 1 billion KRW.

Moreover, the insurers have diversified their risk by subscribing to reinsurance with companies such as Korean Re. Reinsurance is insurance purchased by insurance companies to reduce the burden of large insurance payouts. Korean Re has also minimized its risk through retrocession reinsurance.

An industry insider explained, "It will take quite some time to determine the exact scale of the damage. Since there is a cap on the compensation amount, reinsurance is in place, and multiple insurers share the burden, the impact on each insurer's performance may be more limited than expected."