Insurance Companies Engulfed in Earnings Fear... "The Crisis Is Just Beginning" (Comprehensive)

[Asia Economy Reporter Oh Hyung-gil] Hanwha General Insurance and Lotte General Insurance returned to a net loss last year for the first time in six years. Industry leader Samsung Fire & Marine Insurance also saw its performance drop by about 40%. As the downturn in the insurance market becomes a reality, concerns are rising that the deterioration in performance for general insurers is just beginning. Some pessimistic views suggest that a few small and medium-sized companies may find it difficult to continue their operations. Experts point out that urgent efforts are needed not only for institutional solutions but also for structural improvements.

According to the insurance industry on the 3rd, general insurers that recently announced their results declared a management emergency and plan to reduce business expenses through cost-cutting measures such as lowering labor costs and improving work efficiency.

Lotte General Insurance recorded a net loss of 52.6 billion KRW last year, marking its first deficit since 2013. The loss increased by a whopping 144 billion KRW compared to the previous year. Lotte General Insurance explained that the increase in insurance loss ratios and the change of the largest shareholder from Lotte to Bigtura led to increased losses due to sale consolation payments and severance pay.

In response, Lotte General Insurance decided to completely overhaul its insurance product portfolio and initiate rigorous business expense reductions. Although it strengthened financial stability by issuing 80 billion KRW worth of subordinated bonds in December last year, it also announced plans for additional capital increases this year.

Hanwha General Insurance also turned to a deficit last year as losses increased by about 150 billion KRW compared to 2018. The net loss amounted to 69 billion KRW. Investment operating income declined due to low interest rates, and insurance operating profits worsened as claims for major insurance such as automobile insurance increased.

Large general insurers are also experiencing an 'earnings shock.' Samsung Fire & Marine Insurance’s net profit last year was 647.8 billion KRW, down 40% from 1.07 trillion KRW the previous year. DB Insurance’s net profit decreased by 30% from 537.7 billion KRW to 387.6 billion KRW, and Heungkuk Fire & Marine Insurance also fell by 22%.

Hyundai Marine & Fire Insurance and KB Insurance, which are scheduled to announce their results on the 6th, are also expected to see declines. Their net profits from the first to third quarters last year decreased by 33.9% and 14.5% respectively compared to the same period the previous year. Meritz Fire & Marine Insurance, which reduced its automobile insurance ratio earlier, was the only company to increase net profit by 28%, but this was analyzed to be due to gains from selling high-quality bonds.

General insurers are busy preparing countermeasures in response to the disappointing results, but there are calls for more fundamental institutional reforms. The core issues are real loss insurance and automobile insurance. The industry estimates that last year’s deficits for real loss insurance and automobile insurance reached approximately 2.2 trillion KRW and 1.6 trillion KRW, respectively.

Since the beginning of this year, general insurers have raised premiums for real loss insurance followed by automobile insurance to defend against rising loss ratios. However, this is also seen as a temporary measure. A general insurer official lamented, "With large companies also seeing declining performance, it is obvious that small and medium-sized companies will face increasing difficulties. We have no choice but to take drastic measures such as stopping the sale of insurance products with high loss ratios."

The Korea Insurance Research Institute forecasts that gross written premiums for general insurance will increase by only 2.6% compared to the previous year. Growth in long-term accident and disease insurance, automobile insurance, and general property insurance is expected to slow, while declines in long-term savings insurance and personal pensions will continue.

Experts suggest that insurance payout leakages should be prevented by managing non-reimbursable items with high concerns of excessive treatment, such as cataract surgery or manual therapy. They also point out that general insurers need to reconsider their sales expansion strategies and be guided to develop products that consider long-term profitability and risk.

Jung Sung-hee, a research fellow at the Korea Insurance Research Institute, advised, "It is necessary to increase the deductible for non-reimbursable items to suppress premium increase factors and expand policyholders’ choices. In the long term, the insurance system should shift to a positive list approach that explicitly specifies non-reimbursable items covered by insurance."

This content was produced with the assistance of AI translation services.