Double Burden of Loss Ratios and Policy Factors... Key to Non-Life Insurers’ Q1 Earnings Is Auto Insurance

Earnings Remain Uncertain Despite Premium Hikes

Policy Factors Heighten Industry Tensions

"Margin Improvement Remains Elusive"

Auto insurance has emerged as the biggest variable in the first-quarter performance of non-life insurance companies. Despite premium increases, loss ratios have not stabilized, and additional policy factors are weighing on earnings forecasts for major non-life insurers.

According to the insurance industry on April 23, major non-life insurers such as Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, and DB Insurance are generally expected to post weak first-quarter results. While some companies may perform better due to base effects and investment income, the overall industry continues to face pressure on earnings from rising auto insurance loss ratios and increased business expenses.

Auto insurance is at the center of this sluggish performance. Per-claim costs—including medical expenses, parts, and repair labor—are rising quickly relative to the number of accidents, driving up total loss amounts. In addition, the introduction of the "eight-week rule," designed to curb overtreatment of minor injury patients, has been delayed.

Actual loss ratio figures show that the cumulative first-quarter loss ratio for the top three insurers reached 85.8%, up 3.4 percentage points year-on-year. Last month’s loss ratio also rose to 81.5%, an increase of 4.9 percentage points, breaking away from the usual seasonal decline. Although this year’s premium increases—ranging from the early to mid-1%—have had some impact, the effects of previous premium reductions are still being felt. A representative from one non-life insurer said, “Although auto insurance premiums have recently increased slightly, considering the time lag for these changes to be reflected, it will be difficult to see an immediate improvement in earnings.”

‘Margin Squeeze’ and Policy Factors Add Structural Pressure

Adding to the uncertainty are policy variables. The government and regulators are pushing for auto insurance premium discounts linked to the odd-even vehicle restriction scheme, which is putting continued downward pressure on premiums. Some industry observers note that, since insurers only recently adjusted rates in response to rising loss ratios, renewed discussions of premium reductions could further delay earnings normalization. Kim Jae-woo, Head of Research at Samsung Securities, commented, “If selective discounts via special endorsements are finalized, the overall impact may be limited compared to a blanket premium reduction, but the renewed emphasis on regulatory risk remains a burden. Ultimately, the key point for first-quarter results is how much further the auto insurance loss ratio has deteriorated.”

The industry is concerned that underperformance in auto insurance could affect not only short-term results but also mid- to long-term profitability. Meanwhile, mounting loss ratio pressures in long-term insurance, combined with worsening actual-to-expected claim ratios and the adoption of more conservative actuarial assumptions, are increasing the burden of managing profitability. Kim Hyunsoo, Researcher at SangSangIn Securities, noted, “Although both auto and indemnity health insurance have seen premium increases, it’s not easy to normalize already elevated loss ratios in the short term. On top of that, further tightening of capital-based regulations is putting significant constraints on improving both profitability and capital across the non-life insurance sector.”

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