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http://dx.doi.org/10.5392/JKCA.2021.21.06.588

An Empirical Study on the Profit Margin Adequacy of Korean General Insurance  

Park, Geunyong (캐롯손해보험 경영지원팀)
Kim, So-Yeun (서울과학기술대학교 경영학과)
Publication Information
The Journal of the Korea Contents Association / v.21, no.6, 2021 , pp. 588-597 More about this Journal
Abstract
In Korea, the standard for calculating the profit of a general insurance, which constitutes the loading in the premium, is not specified, and most of the non-life insurance companies reflect 2~5% of the premium as profit margin. Although the transparency of pricing is required due to the nature of insurance products, there are insufficient standards and empirical studies on the determination of insurance price factors in the domestic insurance industry. In this study, we propose a method of calculating the expected profit margin of general insurance. A way for calculating the expected profit margin of the general insurance is to reflect the shareholder demand on the capital that the insurance company should secure against the risk of loss due to the profit/loss volatility, as a ratio to the insurance premium. Shareholders should be compensated for the risks associated with their insurance operations, and the opportunity cost of these shareholders is to be reflected in premiums. In this study, we calculate the amount of capital that the company should accumulate to prepare insurance risk for each product, and insurance risk is defined as the volatility of insurance operating profit/loss. And insurance risk is calculated using stochastic simulation based on Dynamic Financial Analysis (DFA) methodology. Finally, we calculate the expected profit margins for 25 products and analyzed the difference between those and the profit ratio of domestic general insurance.
Keywords
General Insurance; Insurance Risk; Capital; DFA; Profit Margin;
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