Preliminary Business Results of Insurers in Korea for the First Three Quarters of 2018
For the first nine months of 2018, life insurance companies in Korea reported KRW 77.9 trillion in premium income, down 4.7 percent from the same period of 2017, according to the preliminary data released by the Financial Supervisory Service (FSS) in November 2018. The contraction was driven by declining sales of savings life insurance. Premium income from savings insurance products fell by 16 percent year on year to around KRW 25.5 trillion. New business premiums from savings policies shrank even greater by 36.6 percent to KRW 5.2 trillion. On the other hand, premium income from protection-type products increased by 2 percent to KRW 31 trillion.
Life insurance companies have been compelled to focus more on protection policies than on savings products due to the scheduled implementation of IFRS 17. The new reporting standard will pressure life insurers in terms of capitalization as it requires that insurance liabilities be measured at current interest rate values, giving rise to a significant change in reserving. IFRS 17 also requires life insurers to separate distinct investment components from the host insurance contract and to exclude those investment components from their insurance revenues.
By product type, life premium income is broken down as follows: 39.8 percent for protection-type products, savings insurance for 32.8 percent, variable insurance for 18.5 percent and retirement annuities for 8.9 percent.
Life insurers reported KRW 4,038.8 billion in net income for the January through September period of 2018, up 6 percent from the same period a year earlier. This increase was boosted by solid investment gains, which amounted to KRW 18.5 trillion compared to KRW 17.1 trillion a year before. One of the key drivers was one-off gains booked by a leading life insurer for the sale of its stock in Samsung Electronics. The life insurer was under pressure to sell its stock in the electronics maker as the government is pushing for a ban on insurance companies having a stake in an affiliate of more than 3 percent of its assets.
Underwriting losses widened amid falling sales of savings insurance and rising paid claims along with an increase in policy surrender. Another driver was a growth of 9.1 percent in non-operating income on the back of a rise in fee income from strong sales of variable insurance.
The return on assets (ROA) ratio of the Korean life insurance industry inched up to 0.64 percent as of September 30, 2018 due to positive net income results for the first three quarters of the year. The return on equity (ROE) ratio also improved to 7.43 percent.
Non-life insurance premiums grew by 2.8 percent to KRW 63.6 trillion for the January - September period of 2018, backed by the retirement annuity and general property and casualty (P&C) sectors. The retirement annuity sector showed a 16.6 percent growth as in-force premiums kept growing. General P&C posted a 3.7 percent growth in premium income, which totaled KRW 6,935.2 billion. The growth was led by guarantee insurance and casualty lines of business such as insurance for foreigners and crop insurance. Long-term insurance premiums expanded by 2.6 percent amid increasing sales of protection policies, while motor insurance suffered a 2.9 percent decline in premium income due to the effect of price cuts in 2017.
For the nine-month period of 2018, non-life insurers saw their net income fall by 17.6 percent to KRW 2,916.3 billion as underwriting losses were aggravated by a rise in claims particularly in the wake of heatwaves in summer. The general P&C sector remained in the black, although underwriting profit reduced by 29.5 percent due to livestock and crop losses from heatwaves and losses arising from typhoons in Japan. Long-term insurance continued to suffer underwriting losses amid growing sales expenses. The motor insurance sector incurred an underwriting loss of KRW 204.4 billion as heavy snow in February and heatwaves pushed up claims. Meanwhile, investment results improved to KRW 5,889.2 billion on the back of gains from interest income.
The ROA and ROE of the non-life insurance industry dropped to 1.37 percent and 10.8 percent respectively for the first three quarters of 2018, down from 1.81 percent and 13.91 percent a year before. As of late September 2018, non-life total assets amounted to KRW 290.6 trillion, representing a year-on-year increase of 7.7 percent. Total shareholders' equity rose to KRW 36.7 trillion compared to KRW 35.4 trillion a year earlier.
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