ERGO, Axa reel from record losses

By Kim Tae-gyu

Online non-life insurance firms in Korea such as ERGO Daum Direct Auto Insurance and Axa General Insurance posted record losses during the fiscal year 2010, which ended this March.

According to numerous industry sources Wednesday, ERGO Daum chalked up the worst loss rate of 91.3 percent in 2010 while the other three online auto insurance firms including Axa racked up loss rates at around 88 percent.

Loss rates, also known as pure premiums, refer to the proportion of the total premium needed for indemnity payments and allocated loss adjustment expenses. From the perspective of insurers, low rates represent high profitability.

For example, a company’s loss rate is 80 percent when it receives 10 billion won from insurance premiums and spends 8 billion won in coverage payments.

``Loss rates for online auto insurers should be less than 80 percent if they want to be profitable after covering overhead expenses. But the four local direct insurers seem to be way above the benchmark,’’ said an official at General Insurance Association of Korea (GIAK).

``The bad loss rates typically lead to poor bottom lines. The online auto insurers are likely to post substantial deficits for 2010 when they announce their results, out next week at the earliest.’’

As far as loss rates are concerned, ERGO Daum made history last year as its monthly rates reached the unchartered realm of 100 percent twice _ 108.5 percent in August and 111.6 percent in December.

The surging loss rates are certain to prompt ERGO Daum, associated with global financial giant Munich Re Group and its subsidiary ERGO Group, to suffer huge deficits of more than 30 billion won.

The Seoul-based entity experienced losses of 28.5 billion won in 2008 and the next year they amounted to 16.7 billion won. During the first 11 months of fiscal 2010, its deficit came to 35.1 billion won.

In this climate, rumors have spread here that ERGO will leave Korea after years of disappointing performances.

``The auto insurance companies faced problems last year due to rising coverage payouts compared to low insurance charges. However, large-sized offline players can cover their losses in auto insurance with profits from other segments,’’ the GIAK official said.

``Things are totally different for direct insurers because they deal with just auto insurance. To reduce deficits, they raised their insurance premiums twice last year but such measures hardly improved their financial status.

ERGO Daum was not available for comment.