Lotte Sonbo, Last Year's Net Profit of 302.4 Billion KRW... Largest Since Establishment

Lotte Insurance announced on the 13th that it has tentatively recorded an operating profit of 397.3 billion KRW and a net profit of 302.4 billion KRW last year, following the introduction of the new International Financial Reporting Standard (IFRS17). This is the highest performance in the company's history since it was established as Daehan Fire & Marine Insurance in 1946.

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Last year, Lotte Insurance's insurance operating profit was 468.5 billion KRW. The company built a stable profit base centered on long-term protection insurance. The long-term protection insurance gross written premium, which was 1.8669 trillion KRW in 2022, increased by 14.3% to 2.1336 trillion KRW last year. The proportion of long-term protection insurance in the total gross written premium rose by 6.0 percentage points from 80.2% in 2022 to 86.2% last year.

The annual new monthly premium for long-term protection insurance grew by 43.1% to 40.4 billion KRW compared to 28.3 billion KRW in 2022. Through this, the company secured a new contract Contractual Service Margin (CSM) of 547.9 billion KRW last year. The proportion of new contract CSM within the total CSM is 22.9%, which is among the highest in the industry.

The growth trend of CSM also continued. Based on the growth in sales of long-term protection insurance, Lotte Insurance's CSM stood at 2.3966 trillion KRW as of the end of last year, marking a 42.9% increase from 1.6774 trillion KRW at the end of 2022.

The loss ratio significantly decreased. The company-wide loss ratio, including long-term, general, and automobile insurance, was 81.6% last year, improving by 4.9 percentage points compared to 86.5% in 2022. The incurred loss ratio for long-term insurance, calculated by dividing incurred losses by earned premiums, also dropped by 4.1 percentage points to 81.9% from 86% in 2022. The loss ratio for general insurance, which maintained strong contract management and had no major accidents, remained at a sound level of 72.2%.

The loss ratio for automobile insurance, improved significantly through underwriting process enhancements using Artificial Intelligence (AI) and Machine Learning, also showed a large improvement. Lotte Insurance's annual automobile insurance loss ratio last year was 82%, down 5.8 percentage points from 87.8% in 2022. Excluding loss investigation expenses, the annual loss ratio last year was 69.1%, recording the lowest incurred loss amount in the industry.

The persistency rate of long-term protection insurance remained at the top level in the industry. Lotte Insurance's contract persistency rate for long-term protection insurance last year was 88% at the 13th month and 76.6% at the 25th month, both higher than the previous year.

Investment operating results recorded a profit in the fourth quarter, raising expectations for a full-scale improvement going forward. Lotte Insurance's investment operating profit in the fourth quarter last year was 38.2 billion KRW, with most of the investment operating profit generated from recurring investment income. This was due to prior proactive sales of securities, rebalancing into safe assets such as bonds, and conservative asset revaluation, which improved the fundamentals of investment assets. However, Lotte Insurance recorded an investment operating loss of 71.2 billion KRW in 2023, mainly due to valuation losses on interest rate-sensitive assets caused by rising interest rates. Most of these interest rate-sensitive assets are safe assets with principal guarantees, and the valuation losses will be fully reversed at maturity.

The ratio of actual to expected results last year was 1.8%. A positive actual-to-expected ratio indicates that accurate CSM calculation is being performed under optimal assumptions. The actual-to-expected ratio is the difference between expected insurance claims and expenses and the actual incurred insurance claims and expenses, serving as an indicator of the accuracy of actuarial assumptions under IFRS17.

A Lotte Insurance official said, “Recording the highest performance in the company's history since its founding once again proves the results of improving the management system centered on intrinsic value,” adding, “Qualitative achievements such as improved quality of insurance contracts and investment assets and continued stable financial management are also noteworthy.”

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