Sell Less, Earn More... Conditions for Insurance Stocks' Comeback [Click e-Industry]

Improved Indemnity Loss Ratios Expected with Introduction of Managed Benefits

Easing Competition for New Contracts Benefits CSM and Dividend Capacity

Rising Long-Term Interest Rates Also Boost Net Assets and Investment Gains

The perspective on insurance stocks is changing. Until recently, the market focused on the growth rate of new contracts and the increase in contract service margin (CSM) for insurance companies. The prevailing logic was that the more an insurer sold, the higher its future profits would be. However, a new analysis suggests that, at least in the non-life insurance sector, the critical issue is no longer “how much you sell,” but rather “how profitably you sell.”

On August 19, Hanwha Investment & Securities offered a positive outlook on the non-life insurance sector in a recent report, calling it “the beginning of the insurance profit comeback.” The report cited three core reasons for this perspective: improvement in the actual vs. expected loss ratio, easing of competition for new contracts, and rising long-term interest rates.

The first change involves insurance profitability. Since the end of last year, earnings expectations for non-life insurers have decreased sharply. This was largely due to a reduction in the gap between expected and actual insurance payouts. The term refers to the difference between the insurance benefits anticipated by insurers and what is actually paid out. If actual payouts exceed expectations, insurance profitability declines.

For Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, and Hanwha General Insurance, the combined shortfall in expected versus actual insurance payouts amounted to 1.3 trillion won over the six quarters since Q4 2024. However, this negative trend has subsided in 2026. The increase in actual insurance payouts has slowed, while the accounting estimates for future payouts have risen, narrowing the gap between expectation and reality.

Additionally, the introduction of managed benefit payments is another profit improvement factor. Managed benefits refer to a system in which certain non-covered medical services—often at risk of over-treatment—are brought under regulated standards with set criteria and pricing. Since July, manual therapy, percutaneous epidural neuroplasty, and radiation hyperthermia treatment have all been designated as managed benefits. For extracorporeal shockwave therapy, rather than being designated as a managed benefit, the number of treatments allowed per year is now limited.

Among these changes, manual therapy has had the greatest impact. The average out-of-pocket price for manual therapy used to be slightly over 100,000 won per session, but under the managed benefit system, this has dropped to about 44,000 won. Hanwha Investment & Securities estimates that annual indemnity insurance payouts for manual therapy will decrease by about 80 billion won for the three major insurers, and by about 20 billion won for Hanwha General Insurance.

The second shift concerns reduced competition for new policies. While a decrease in new contracts is typically seen as negative in the insurance industry, the situation has changed. Excessive competition for new business has led to increased per-contract acquisition costs, higher loss ratios, decreased CSM margin multiples, more frequent cancellations, greater burdens from surrender value reserves, and weakening capital adequacy. In other words, increased sales did not simply build future profits but also added to costs and liabilities.

Conversely, higher premium rates and stronger commission regulations have weakened the sales race, allowing for a virtuous cycle. The margin multiple for new contracts rises, negative CSM adjustments decline, and the burden from surrender value reserves decreases. Ultimately, this strengthens insurers’ basic capital and dividend capacity. Rather than being a concern, the current decrease in new contracts is seen as long-awaited normalization.

The report also found that the increase in auto insurance premiums—which had been perennially unprofitable—contributed to improved profitability. Non-life insurers raised auto premiums slightly earlier this year, easing some financial strain. Starting next month, the “8-week rule” will be implemented, requiring a review of the necessity for continued treatment when minor injury patients undergo therapy for more than eight weeks.

Lastly, rising long-term interest rates are likely to reduce insurance liability valuations, which in turn favors growth in net assets. Doha Kim, a researcher at Hanwha Investment & Securities, stated, “Given the current phase—where volume competition is diminished, market interest rates are rising, and premium rates are increasing—the quality of new contracts is expected to improve. As competition for new contracts eases, per-policy acquisition costs will decrease while new contract CSM increases, reducing the risk of lower distributable profits.”

This content was produced with the assistance of AI translation services.