Stable Auto Insurance Loss Ratio in April... Surplus Expected This Year
Insurance Sales Growth: Non-Life 3.9% VS Life 0.3%
"Gap Between Life and Non-Life Insurance Net Profits May Widen"
Non-life insurance companies are expected to continue their strong performance this year, widening the gap with life insurance companies. This is because auto insurance, which had been in the red for years, is steadily turning profitable, and both long-term non-life insurance and general non-life insurance are growing, strengthening their fundamentals.
According to the industry on the 23rd, the average loss ratio of the four major non-life insurers?Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, and KB Insurance?who hold over 85% of the auto insurance market share, was 76.2% last month, down 1.6 percentage points compared to the same month last year. The cumulative loss ratio from January to April this year also remained at a decent level of 76.8?77.2%. Typically, the loss ratio range for auto insurance where insurers do not incur losses is around 78?82%.
Auto insurance, which had been a "perennial deficit," is now showing a stable loss ratio and sailing smoothly. Last year, the average loss ratio of the Big 4 non-life insurers was 80.4%. Since rising to 92.1% in December 2021, it has rarely exceeded the mid-80% range. Despite the recovery of mobility demand as the COVID-19 situation eases, the loss ratio has been managed steadily.
Although non-life insurers have reduced auto insurance premiums by about 2% this year, improvements in the system to prevent excessive treatment of minor injuries have led to forecasts that auto insurance can continue to post profits for the third consecutive year. Previously, non-life insurers recorded their first-ever profit in auto insurance in 2021 and posted strong results again last year. Operating profits from auto insurance for 12 domestic non-life insurers increased by 20.1% (KRW 79.9 billion) year-on-year to KRW 478 billion.
With the burden of auto insurance eased and the growth of long-term and general non-life insurance continuing, non-life insurers are expected to maintain stable growth in their performance this year. The gap with life insurers, who have yet to find significant growth drivers, is expected to widen further. According to the "2023 Insurance Industry Outlook and Challenges" report released by the Korea Insurance Research Institute’s Trend Analysis Office, the earned premium revenue of non-life insurers is expected to increase by 3.9% year-on-year this year. In contrast, life insurers’ earned premium revenue is projected to grow by only 0.3% year-on-year. This is due to the expected decline in new demand for savings insurance and investment-type products, as well as whole life insurance, despite growth in disease and health insurance.
Although large life insurers such as Samsung Life Insurance and Kyobo Life Insurance posted net profits in the first quarter that grew 59?145% year-on-year, this is interpreted as a "phantom effect" caused by the introduction of new accounting standards. Under IFRS 9, introduced this year, gains and losses on valuation of equity securities are reflected in net profit. As bond market interest rates stabilized, the value of bond assets held increased, leading to improved performance. Additionally, the amortization period for new contract costs was extended from 7 years to the insurance subscription period, reducing expenses.
The Financial Supervisory Service reported that life insurers’ net profit in the first quarter was KRW 2.73 trillion, surpassing the KRW 2.5 trillion of non-life insurers. However, excluding this phantom effect caused by the new accounting standards, the situation reverses. Life insurers’ net profit falls to KRW 1 trillion, a decrease of KRW 420 billion year-on-year, while non-life insurers’ net profit rises to KRW 2.02 trillion, an increase of KRW 370 billion year-on-year.
A Financial Supervisory Service official explained, "Non-life insurers have solid fundamentals and their performance improved with the reflection of accounting standard changes, whereas the improvement in life insurers’ performance was largely due to the IFRS 9 effect reflecting valuation gains on equity securities. Since non-life insurers surpassed life insurers in net profit in 2021, the gap is expected to widen further from this year."
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