Auto Insurance Loss Ratio Drops... Insurers Expect COVID-19 Windfall in Q1 Earnings

Average Auto Insurance Loss Ratio at 79.1% as of March Closing
Appropriate Loss Ratio at 77~78% Level

[Asia Economy Reporter Ki Ha-young] Due to the impact of the novel coronavirus infection (COVID-19), improvements in automobile insurance loss ratios and other factors are expected to result in better-than-anticipated first-quarter performance for the non-life insurance industry.

According to the securities industry on the 18th, the net income of non-life insurers (Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance) in the first quarter of this year is estimated to exceed the securities firms' consensus of 367 billion KRW. Hyundai Motor Securities forecasted that the combined profit of the three major non-life insurers in the first quarter would reach 387.1 billion KRW, surpassing the consensus by 5.4%. Yuanta Securities also predicted that the combined profit of the three companies in the first quarter would exceed the consensus by 7.3%.

This is due to the short-term improvement in automobile insurance and actual medical expense insurance performance caused by the COVID-19 outbreak. As social distancing measures were strengthened due to the spread of COVID-19, automobile accidents and hospital visits decreased, leading to some improvement in loss ratios.

Jeong Tae-jun, a researcher at Yuanta Securities, said, "Due to COVID-19, over-treatment and excessive claims have decreased, so the automobile insurance loss ratio in the first quarter is expected to improve compared to the previous quarter," adding, "Improvement compared to the same period last year is also possible from the second quarter."

In fact, based on the March preliminary closing data of four major non-life insurers (Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, KB Insurance), the average automobile insurance loss ratio was recorded at 79.1%. Looking at each insurer, Samsung Fire & Marine Insurance's loss ratio was 76.5%, down 5.4 percentage points year-on-year; Hyundai Marine & Fire Insurance was 79.0%, down 0.1 percentage points; DB Insurance was 81.0%, down 2.2 percentage points; and KB Insurance was 80.0%, down 4.7 percentage points.

The loss ratio refers to the ratio of insurance claims paid to customers relative to the premiums received from customers. The non-life insurance industry considers an appropriate loss ratio to be around 77-78%. At the end of last year, the average loss ratio of non-life insurers approached 100%, meaning the more they sold, the more they lost.

Due to social distancing, the volume of automobile traffic sharply decreased, leading to a reduction in the number of accidents. The number of accidents reported to the four non-life insurers last month was 289,000, a 16.7% decrease compared to the previous year.

The decline in loss ratios for automobile insurance and actual medical expense insurance is also expected to impact the net income of non-life insurers, which recorded their worst performance last year due to worsening loss ratios. According to the Financial Supervisory Service, the net income of 31 non-life insurers last year totaled 2.2227 trillion KRW, down 31.7% from the previous year. Although the insurers' investment operating profit increased by 18.0% from 2018 to 1.3932 trillion KRW, insurance operating losses expanded significantly from 3.1321 trillion KRW in 2018 to 6.0221 trillion KRW due to worsening loss ratios in automobile insurance and increased long-term insurance business expenses.

However, concerns have been raised that automobile loss ratios may surge again once the social distancing recommendation period ends. According to mobility statistics from the Central Disaster and Safety Countermeasures Headquarters, the number of Saturday movements detected before the COVID-19 outbreak until mid-January was around 18 million. After the outbreak, the number of movements sharply decreased to 13.76 million in early February and 10.15 million in early March, but the number of Saturday movements in early April is on the rise again, reaching 13.53 million.

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