The net profits of Korea’s top five non-life insurers -- Samsung, Hyundai, DB, KB and Meritz -- in the first three quarters of this year stood at 1,323.9 trillion won, down 37.6 percent from the same period last year, said the Financial Supervisory Service on Nov. 18.
The non-life insurers' profitability from insurance sales has deteriorated a great deal. DB’s deficit more than tripled from 161.9 billion won to 535.1 billion won. That of Meritz also swelled from 249.9 billion won to 555.9 billion won and that of Hyundai from 316.4 billion won to 678.2 billion won.
This is because loss and expense ratios are deteriorating at the same time. The loss ratio of auto insurance hit an all-time high even after insurers raised premiums twice this year. There were many factors that ignited premium raises such as elevating laborers’ maximum working age, a hike in auto maintenance fees, and the addition of chiropractic in health insurance. However, auto insurance premiums were not raised high enough as they were counted in the calculation of the inflation rate index. Normally, a proper loss ratio of auto insurance hovers 78 to 80 percent, while those of Hyundai & KB rose to 89 percent.
As the competition for attracting new contracts, in particular, those on long-term personal insurance intensified, their business proportion also rose sharply. That of Meritz rose from 26 percent to 29.8 percent, the industry's highest level, in one year. Generally, if the combined ratio of a loss ratio and an expense ratio exceeds 100 percent, the product cannot generate profit. All of the five non-life insurers have had a combined ratio over 100 percent for a long time.
The long-term risk loss ratio is also on the rise due to an increase in medical use stemming from the strengthening of insurance coverage. A long-term risk loss ratio is the ratio of actually paid insurance money in risk insurance premiums put aside to pay insurance buyers by calculating the probability of occurrence of risks in long-term insurance such as actual loss insurance. The lower a long-term risk loss ratio is, the more profit insurers can make. Recently, however, long-term risk-loss ratios rose to close to 100 percent. That of Hyundai climbed from 86.6 percent to 95.6 percent in one year, and all other non-life insurers such as Meritz (92 percent) and DB (91.4 percent) rose to around 90 percent.
The problem is that profitability worsens and more and more insurance companies are preserving their profits by profitable bonds. Meritz and Hyundai will be virtually in the red and DB’s profits will be halved if gains on the disposal of bonds are excluded.