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

Auto insurance has emerged as the biggest variable affecting non-life insurers' first-quarter earnings. Despite premium hikes, loss ratios have not stabilized, and additional policy variables are weighing on expectations for the major non-life insurers' results.

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According to the insurance industry on April 23, the first-quarter earnings of major non-life insurers such as Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, and DB Insurance are generally expected to be weak. While some companies may perform relatively well due to base effects and investment gains, the industry as a whole continues to face a structure in which rising auto insurance loss ratios and increased business expenses are suppressing earnings.

Auto insurance is at the center of these poor results. The average cost per accident-including medical expenses, parts, and repair labor-has been rising rapidly, pushing up total losses. In addition, the implementation of the '8-week rule,' designed to curb overtreatment of minor injury patients, has also been delayed.

Looking at the actual loss ratio figures, the cumulative loss ratio for the top three insurers in the first quarter was 85.8%, up 3.4 percentage points from the same period last year. Last month's loss ratio also rose by 4.9 percentage points to 81.5%, departing from the typical seasonal downward trend. Although this year's premium hikes in the low to mid-1% range have had some effect, the lingering impact of previous premium reductions remains. An official from one of the non-life insurers stated, "Although auto insurance premiums have recently increased slightly, considering the time lag in their reflection, it will be difficult to see a rapid improvement in earnings in the short term."

Uncertainty has grown even further due to additional policy factors. The government and authorities are pushing for auto insurance premium discounts linked to the vehicle 2·5 alternate-day driving system, maintaining downward pressure on premiums. Some point out that, although insurers have only recently adjusted rates to reflect rising loss ratios, renewed discussions about further reductions may delay earnings normalization even more. Jae Woo Kim, team leader at Samsung Securities Research Center, remarked, "If selective discounts through special terms are finalized, the impact may be limited compared to a comprehensive premium reduction, but the resurgence of regulatory risks is still a burden," adding, "Ultimately, the key focus for the first-quarter earnings announcement will be how much further the auto insurance loss ratio has deteriorated."

The industry is concerned that the poor performance of auto insurance could not only affect short-term results but also put pressure on mid-to-long-term profitability. Additionally, as upward pressure on loss ratios continues in long-term insurance, and with both worsened actual-to-expected loss differences and the adoption of more conservative actuarial assumptions, the burden of profitability management is growing. Hyunsoo Kim, analyst at SangSangIn Securities, said, "Although both auto and indemnity health insurance have seen rate hikes, it is not easy to normalize the already high loss ratios in the short term," and added, "Furthermore, with the strengthening of capital-based regulations, it is becoming increasingly difficult for the non-life insurance sector as a whole to improve both profitability and capital at the same time."

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