Insurance stocks surge as auto premium hikes, treatment cost cuts lift outlook

Insurance stocks have stood out as the strongest performers on the domestic equity market this month, buoyed by solid second-quarter earnings and growing expectations that a new managed-benefit regime for manual therapy — in effect since last month — will reduce insurance claims and improve loss ratios in the second half of the year.

According to Korea Exchange, the KRX Insurance Index rose 12.27 percent from Aug. 3 to Friday, the highest gain among 40 major KRX indexes during the period — more than 2.5 times the Kospi's 4.81 percent advance over the same stretch. Among individual stocks, Mirae Asset Life Insurance led the way with a 57.84 percent gain, followed by Hanwha General Insurance (29.86 percent), Hyundai Marine & Fire Insurance (29.39 percent), Hanwha Life Insurance (23.76 percent) and DB Insurance (13.25 percent), all posting double-digit gains. Korean Reinsurance (5.59 percent), Samsung Life Insurance (5.46 percent) and Samsung Fire (4.59 percent) also rose.

Analysts say a favorable interest rate environment has added further momentum to the rally. The yield on the 30-year US government bond climbed to an intraday high of 5.337 percent on Tuesday (local time), its highest level since 2007. It has since pulled back but remains above 5 percent. Because insurers invest premiums in long-term bonds and similar instruments, rising long-term rates can boost investment returns on new bond purchases and reinvestment while also strengthening capital buffers.

Strong earnings also contributed to the sector's gains. Samsung Fire's first-half net profit reached 1.37 trillion won ($992 million), up 10.2 percent from a year earlier, while DB Insurance posted 979.6 billion won, up 8.0 percent, and Hyundai Marine & Fire Insurance reported 615.1 billion won, up 36.4 percent. Core underwriting income also improved: Samsung Fire's first-half insurance profit rose 10.9 percent year-on-year to 1.11 trillion won, DB Insurance's climbed 17.6 percent to 788.4 billion won, and Hyundai Marine & Fire Insurance's surged 81.6 percent to 705.8 billion won. Stabilizing loss ratios in long-term and general insurance lines, along with a narrowing deficit in the gap between actual and expected claims, drove the improvement.

According to Daishin Securities, the risk loss ratios of the three insurers fell an average of 3.1 percentage points from the first quarter. The market is now watching whether that decline will continue into the third quarter, as premium increases — centered on national health insurance — have been rolling out since last year and the reduction in manual therapy claims is proving larger than expected.

When manual therapy was designated a managed benefit last month, the average cost per session fell from 135,000 won to 43,850 won. Samsung Fire's average daily manual therapy claims subsequently dropped from 450 million won to 250 million won, DB Insurance's fell from 330 million won to 200 million won, and Hyundai Marine & Fire Insurance's declined from 650 million won to 400 million won — an average reduction of roughly 40 percent across the three companies.

Park Hye-jin, a researcher at Daishin Securities, said that while some balloon effect should be expected as treatment previously concentrated in manual therapy shifts to alternatives such as hydrodistension, painless signal therapy and extracorporeal shock wave therapy, "it is clear that the impact of manual therapy has diminished." She added that claims had surged at the end of June ahead of the July policy change and were reflected in July figures, meaning "claim amounts will decrease further from current levels as we move through the second half."

Profit improvement from the managed-benefit introduction is also anticipated. Hanwha Investment forecast that after the deterioration in the gap between actual and expected claims bottomed out in the first half, insurance profits will improve year-on-year in the second half as projected claim increases combine with the effect of the managed-benefit regime. It estimated that the reduction in manual therapy-related claims at the three major non-life insurers from the managed-benefit introduction would amount to roughly 80 billion won annually.

Profitability tailwinds are also building in auto insurance. Non-life insurers cut auto premiums for four consecutive years from 2022 through 2025 before raising them by 1.3 to 1.4 percent earlier this year. Starting Sept. 10, a so-called "eight-week rule" will also take effect, limiting long-term treatment for minor-injury auto accident patients. Those seeking treatment beyond eight weeks after an accident will need the necessity reviewed by a medical professional at the Motor Injury Assessment Center. Securities analysts expect the rule to curb excessive treatment, noting that roughly 90 percent of minor-injury patients typically complete treatment within eight weeks of an accident.

Jeong Min-gi, a researcher at Samsung Securities, said the insurance sector "has passed through its worst phase and is showing improvement through profitability recovery measures such as rate increases, while capital buffers are also recovering on the back of rising interest rates." He added that regulatory changes taking effect in the third quarter — including the managed-benefit designation for manual therapy and the auto insurance minor-injury patient rule — "are expected to contribute to fundamental improvement."