Small nonlife insurers suffer major setback

/By Jhoo Dong-chan

The nation's small nonlife insurers are suffering deteriorating earnings due to a worsening business environment.

Some insurers even conducted a cutthroat competition against each other last year to attract more customers, but failed to convert their efforts into profit

In the meantime, larger nonlife insurers, such as Samsung Fire & Marine Insurance, managed to post a solid profit last year, deepening polarization between big and small players.

According to the Financial Supervisory Service (FSS), Meritz Fire & Marine Insurance posted a 312.7 billion won ($278.2 million) operating profit last year, down 39.1 percent from the previous year's figure of 513.6 billion won.

The insurer's net profit was also down 39 percent year-on-year to 234.7 billion won from the previous year's 384.6 billion won.

“Meritz Fire & Marine gained attention for its aggressive marketing campaign last year. It was in stark contrast to other firms taking a cautious wait-and-see approach due to worsening loss ratios and the introduction of a new set of accounting standards,” said a major nonlife insurer worker who asked not to be named.

“The current business environment isn't very favorable. Even major firms need to come up with countermeasure against their worsening loss ratios, especially in the car insurance sector. The introduction of IFRS 17 will also financially pressure insurers to have more reserves. Mertiz took the risk anyway, but their efforts came up short of expectations.”

IFR17 is a new set of accounting standards that are expected to be introduced in 2022 requiring stricter reserve room for insurance companies.

Other small nonlife insurers even posted more disappointing earnings in the period.

Hanwha General Insurance said it saw a 110.3 billion won operating profit last year, down 197.5 billion won, or 44.2 percent, from 2017. Its net profit also suffered a 44.7 percent year-on-year drop to 81.6 billion won from the previous year's 147.6 billion won.

Likewise, Heungkuk Fire & Marine suffered a 41.4 percent drop in operating profit to 62.8 billion won. The insurer's net profit was also down 47 percent to 45.2 billion won.

“There are more than 15 nonlife insurers in Korea. The market is already saturated,” said another industry insider.

“In a bid to occupy a larger market share, they have conducted a neck-and-neck race to attract more customers, which directly led to a losing game for everyone. Such a stance isn't sustainable. If IFR17 is introduced two years from now, a few firms will go out of business.”

Deteriorating loss ratios in their car insurance business led the worsening earnings.

According to the FSS, the average loss ratio in the car insurance sector was 86.8 percent in the January-to-September period last year, up 4.8 percentage points from 82 percent in 2017.

The loss ratio indicates a nonlife insurer's spending over its premium income. The higher the loss ratio, the higher expenditure firms had to pay for insurance coverage.

Larger nonlife insurers, in the meantime, managed to post solid earnings last year.

Samsung Fire & Marine posted a 1.45 trillion won operating profit, up 15.7 percent.

“The firm managed to post a profit last year, but business environment is even worse this year,” said a company official. “It will be challenging, but we will do our best to satisfy customer demand.”