Massive Coupang blaze to hit Korean Re, DB Insurance
Insurers' stocks remain resilient despite expected loss
By Lee Min-hyung
A fire at a Coupang logistics center here will increase the loss ratio for Korean Re and DB Insurance, two local insurers with the biggest liabilities to cover the damage from the industrial disaster. Last week, a fire engulfed the logistics center in Icheon, Gyeonggi Province, leaving one firefighter dead. Coupang is expected to make an insurance claim worth around 360 billion won.
Four Seoul-based non-life insurers ― DB Insurance, KB Insurance, Lotte Non-Life Insurance and Heungkuk Fire & Marine Insurance ― signed the joint property insurance worth 400 billion won ($353.16 million) for the warehouse. Of them, DB Insurance has the largest liability of 60 percent, with KB and Lotte following the list with 23 percent and 15 percent, respectively.
This will have a substantial but negative impact on the industry by aggravating the average loss ratio in the market and weakening profitability of the insurers.
But as all four insurers signed a reinsurance contract with Korean Re, the industry estimates they will not have to make massive insurance payments for the latest disaster.
DB Insurance confirmed Tuesday that it would pay up to 7 billion won for Coupang under the reinsurance contract with Korean Re.
"The exact damage over the recent disaster has not been accurately calculated, but we will pay as much as the amount due to the contract," an official from the insurer said.
This will enable the other three insurers to pay a much smaller amount of money to Coupang.
Korean Re, the nation's largest reinsurer, declined to comment regarding its estimated insurance payment for the disaster, as it has also signed reinsurance contracts with overseas reinsurers.
"Under our non-disclosure agreement (NDA) with overseas reinsurers, we cannot comment on any data regarding a possible loss range over the incident," a spokesperson of the company said. "The total amount of damage has not been confirmed, so it will take much more time for us to calculate the specific loss that we have to cover."
The official said it might even take a few years for the company to figure out the exact amount of its insurance payment if any legal dispute occurs among related parties while settling the issue.
"There are so many variables that we have to take into account, so it is hard for us to share any estimated figures for the time being," the official said.
Korean Re's net profit in 2020 stood at 141.8 billion won, down 25 percent from the previous year. The insurer was hit hard by a series of fires that occurred at factories of major chemical companies here.
This pushed the fire insurance industry's average loss ratio up to a record high of 82.1 percent last year, a steep rise from 60 percent in 2019.
Hana Financial Investment said in a report, Tuesday, that DB Insurance and Korean Re would not suffer huge losses due to the Coupang blaze.
"Korean Re is dispersing risk through reinsurance contracts with other insurers, and the company is estimated to report a loss of 8 billion won from the incident," said Lee Hong-jae, an analyst at the brokerage house. Lee also pointed out that the two insurers' decent risk management would help minimize their losses from the warehouse fire, saying that this will pose a "minor impact" on their earnings.
"Both of the companies have solidly managed risks, so their earnings will be hit a little by the incident," he said. "My view is that their stock prices will not be affected by the disaster."
The stock price of DB Insurance jumped by more than 1.8 percent to close at 49,750 won per share, Tuesday, from the previous trading day, according to the Korea Exchange (KRX), the country's bourse operator. That of Korean Re also remained resilient by closing at 9,460 won, up 1.28 percent, during the same period.
"Stocks in the insurance industry have been entering a correction period, but the outlook for the non-life and reinsurance industries still remains rosy," the analyst said.