Preliminary Business Results of Insurers in Korea for the First Half of 2018
The Korean insurance market contracted in the first six months of 2018. Life insurance companies in Korea reported KRW 52.8 trillion in premium income for the first half of the year, down 5.7 percent from the same period a year before, according to the preliminary data released by the Financial Supervisory Service (FSS) in August 2018. The decline was driven by sluggish sales of savings life insurance. Premium income from savings insurance products fell by 20.1 percent year on year to around KRW 17 trillion. New business premiums from savings policies shrank even greater by more than 50 percent to KRW 2,102.7 billion. On the other hand, premium income from protection-type products increased by 1.9 percent to KRW 20.6 trillion.
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. IFRS 17 also requires them to separate distinct investment components from the host insurance contract and to exclude those investment components from their insurance revenues.
It is noteworthy that new business premiums from variable life insurance grew by 39.7 percent to KRW 1,177.3 billion in the first half of 2018, surpassing the KRW 1 trillion mark for the first time since the first half of 2011. This robust growth was attributed to strong marketing campaigns and a bullish stock market. Meanwhile, the retirement annuity sector recorded a 13.1 percent rise in premium income, which amounted to KRW 5,367.5 billion.
A breakdown of life premium income by product type shows that protection-type products took up the largest share of 39.1 percent, followed by savings insurance (32.2 percent), variable insurance (18.5 percent) and retirement annuities (10.2 percent).
Life insurers reported KRW 3,148.7 billion in net income for the first two quarters of 2018, up 6.7 percent from the same period of the prior year. Although underwriting losses widened amid falling sales of savings insurance and rising paid claims along with an increase in policy surrender, investment gains expanded by 11.7 percent to approximately KRW 13 trillion on the back of a rise in gains on sale of marketable securities. Another boost came from non-operating income, which was up 14.9 percent to KRW 2,563.4 billion. A rise in fee income from strong sales of variable insurance contributed to non-operating income growth.
As of the end of June 2018, the return on assets (ROA) ratio of the Korean life insurance industry improved slightly to 0.75 percent due to positive net income results for the first half of the year. The return on equity (ROE) ratio also went up by 0.3 percentage point to 8.86 percent.
The non-life insurance market grew by 3.3 percent to KRW 42.9 trillion in premium income for the January - June period of 2018, backed by the general property and casualty (P&C) and retirement annuity sectors. The general P&C sector recorded a 5.3 percent growth in premium income to KRW 4,838.9 billion amid a rise in personal finance credit insurance sales driven by the growth of mid-range interest rate lending business. Strong sales of group insurance for foreigners and mobile phone insurance also helped boost the general P&C market.
Motor insurance premiums decreased by 1.1 percent to KRW 8,421 billion amid fierce price competition among insurers. The contraction in premium income was also attributable to the expansion of the online motor insurance market where consumers can obtain cheaper insurance quotes.
Long-term insurance premiums also expanded by 2.4 percent to over KRW 25 trillion, supported by protection policies. As the sales of savings insurance policies plunged, new business premiums for long-term insurance dropped by 22.4 percent to KRW 554.2 billion.
Agencies accounted for the biggest share (45.7 percent) of the total premium income, followed by tied agents (25.9 percent), direct marketing (19.2 percent) and bancassurance (7.6 percent).
The level of market concentration decreased slightly, with the combined market share of four largest non-life insurers dropping by 1.1 percentage points to 66.9 percent. They saw their market share increase in motor insurance but decline in long-term and general P&C insurance.
Copyrightⓒ 2000~2015 Korean Reinsurance Company. All Reserved