Lotte Insurance saw a sharp decline in performance due to the financial authorities' application of the 'non-cancellation and low-cancellation insurance cancellation rate guidelines.' The estimated effect of the reduction in net profit due to the application of the guidelines is about 100 billion won.
Lotte Insurance noted on the 13th that its net profit for last year was estimated at 27.2 billion won and its operating profit at 33.7 billion won. This represents a decrease of 91% and 91.5%, respectively, compared to the previous year. Until the third quarter, Lotte Insurance had accumulated a net profit of 84.4 billion won and an accumulated operating profit of 107.8 billion won.
Earlier, the financial authorities required insurance companies to apply a 'log-linear model,' arguing that many insurers inflated the profitability of products on the premise that the cancellation rates for non-cancellation and low-cancellation products would be high by requiring that the cancellation rate approaches 0% by the end of the premium payment period.
Lotte Insurance's insurance operating profit for last year was recorded at 180.2 billion won. Notably, long-term insurance profit reached 201.9 billion won, of which the insurance contract margin (CSM) amortization amount was 225.4 billion won, showing a 20.7% growth compared to the previous year (186.9 billion won).
As of the end of last year, Lotte Insurance's CSM stood at 2.32 trillion won, a decrease of 3.2% compared to the previous year (2.3966 trillion won). If the guidelines had not been applied, the CSM is estimated to have exceeded approximately 2.5 trillion won.
Lotte Insurance explained that 'the scale of CSM decreased somewhat due to changes in the cancellation rate assumptions for non-cancellation and low-cancellation insurance contracts,' while also noting that 'as the growth of long-term guarantee insurance continues, volatility has been minimized, and it generated 48 billion won in new contract CSM annually, reaffirming growth potential.'
Last year, the retention rate of Lotte Insurance's long-term guarantee insurance was 92.6% for 2nd to 13th installments, and 76.7% for 14th to 25th installments. The overall loss ratio for long-term, general, and automobile insurance combined was 82%, similar to the previous year, and the long-term insurance retention loss ratio, which is the ratio of incurred losses to earned premiums, was also similar to the previous year at 81.8%.
Lotte Insurance experienced a loss of 146.6 billion won in last year's investment operating results but projected significant improvement based on expanded ordinary investment profits. A representative from Lotte Insurance stated, 'While reflecting one-time and temporary factors due to the strengthening of regulations, profits and CSM temporarily decreased, but we maintained a profitable operation,' adding, 'In the future, we will steadfastly carry on a growth strategy that enhances the basic competitiveness of the insurance business.'