Preliminary Business Results of Insurers in Korea for the First Quarter of 2018
Life insurers in Korea reported KRW 26.1 trillion in premium income for the first three months of 2018, down 8.7 percent from a year earlier, according to the preliminary data released in May 2018 by the Financial Supervisory Service (FSS). The contraction was driven by falling sales of savings life insurance and retirement annuity plans, as life insurers have been encouraged to sell more protection policies than savings products due to the adoption of the International Financial Reporting Standard (IFRS) 17 scheduled for 2021. The implementation of IFRS 17 will pressure life insurers in terms of capitalization as they will be required to measure their insurance liabilities at current interest rate values and set aside higher levels of reserves. They saw their savings insurance premiums diminish year on year by 23.6 percent to KRW 8.6 trillion for the first quarter of 2018 and retirement annuity premiums down 3.4 percent to KRW 2.2 trillion.
A breakdown of life insurance premiums for the first quarter of this year shows that the share of premiums from protection products exceeded that of savings premiums for the first time since the first quarter of 2011. Protection policies accounted for the largest share of 39.4 percent, followed by savings insurance at 33 percent, variable insurance at 19.3 percent and retirement annuity plans at 8.3 percent.
Life insurers' net income for the first three months of 2018 was KRW 1.2 trillion, down 21.7 percent from the same period of the previous year, due to an increase in underwriting losses. The aggravation in underwriting performance was attributable to the decrease in savings premiums and a rise in paid claims following the industry's initiative to identify and settle unpaid claims. Their investment profit shrank by 1 percent to KRW 6 trillion as gains from the disposition and valuation of securities decreased amid rising interest rates.
As of the end of March 2018, the return on assets (ROA) ratio of the Korean life insurance industry fell by 0.21 percentage point to 0.59 percent due to weaker net income results for the first quarter. The return on equity (ROE) ratio was up 2.38 percentage points to 7.03 percent.
The non-life insurance industry recorded a growth in premium income for the January to March period of 2018. Non-life premiums increased by 1.4 percent to over KRW 19 trillion, backed by general property and casualty (P&C) insurance premiums. With the growth of travel and group insurance businesses, non-life insurers experienced a 9.3 percent rise in general P&C insurance premiums. Long-term insurance premiums also expanded by 0.8 percent, supported by protection policies. The motor insurance sector suffered a decline of 1.1 percent in premium income due to intensifying price competition.
Net income for non-life insurers also declined by 26.7 percent to KRW 880.9 billion as their underwriting losses continued to increase. Rising loss ratios for motor insurance and expense ratios for long-term insurance helped pushed underwriting losses up to KRW 703.1 billion. Meanwhile, investment profit reduced by 1 percent to USD 1.9 trillion.
Non-life insurers reported higher profitability than life insurers, with an ROA of 1.27 percent and an ROE of 10.21 percent. Still, low profitability continued to present challenges to non-life insurers as they had to struggle with underwriting losses as well as slowing premium income growth. As of late March 2018, the total assets of non-life insurance companies amounted to KRW 279 trillion, up 9.3 percent from a year earlier. Their shareholders' equity increased by 3.5 percent to KRW 33.8 trillion.
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