Preliminary Business Results of Insurers in Korea for the First Quarter of 2022
Insurance companies in Korea reported weak business results for the first quarter of 2022, with their net income declining by 21.2% year on year to KRW 3,051 billion. Their investment performance deteriorated due to decreases in dividend income and gains on sales of financial assets, while widening underwriting losses for many life insurers also weighed on the industry’s overall bottom-line results.
Net income for life insurers plunged by 45.2% to KRW 1,399.1 billion in the first three months of 2022 mostly because of a sharp fall in investment gains. There was a 15.2% reduction in investment profit, driven by decreases in dividend income and gains on disposition of financial assets. The decline in dividend income was attributable to the base effect from a massive dividend payout to a major life insurer from Samsung Electronics in the first quarter of the previous year. As premium income from savings insurance fell, life insurers’ underwriting losses also expanded, putting pressure on their deteriorating net income.
On the other hand, non-life insurers saw their business results improve strongly, with their net income jumping by 25.4% to KRW 1,651.9 billion in the three-month period ending on March 31, 2022. This improved performance was backed by a big turnaround in their technical results after years of underwriting losses. Many non-life insurers delivered better underwriting performance compared to a year earlier thanks to falling loss ratios. Fewer claims arising from a decrease in road traffic and non-urgent hospital visits during the pandemic helped non-life insurers improve their loss ratios. Meanwhile, their investment gains dwindled by 3.6% to KRW 2,270 billion, and this adverse investment performance resulted from a decline in gains on sales of financial assets.
The volume of premium income contracted by 3.1% year on year to KRW 50.9 trillion in the January – March period of 2022 due to a sharp drop in life insurance premiums. Life insurers reported approximately KRW 26 trillion in premium income in the first quarter of 2022, down 10.3% from the same period of the prior year. In particular, savings and variable life insurance premiums plummeted by double-digit rates. Premiums from protection-type insurance and retirement annuities grew modestly.
Non-life insurers recorded positive top-line growth with their premium income increasing by 5.1% to KRW 25.8 trillion. General P&C insurance premiums grew by 6.7%, while retirement annuities, long-term and motor premiums rose by 5.5%, 5.4% and 3.0%, respectively.
Insurers saw their profitability ratios decline due to negative growth of net income in the first three months of 2022. The return on assets (ROA) ratio of the industry fell by 0.27%p to 0.91%, while the return on equity (ROE) ratio dropped by 1.32%p to 9.86%. Non-life insurers reported higher ratios than life insurers as below:
As of the end of March 2022, insurance companies showed a moderate decrease in assets. Their total assets declined by 2.1% year on year to KRW 1,330.7 trillion, which is broken down into KRW 966.7 trillion for life insurance and KRW 364 trillion for non-life insurance. Life insurers experienced a greater decrease in assets compared to non-life insurers, but the former continued to dominate insurance industry assets, accounting for 73% of the total.
The insurance industry saw its total shareholders’ equity diminish by 16.1% to KRW 113 trillion as of late March 2022 because higher interest rates caused insurers to suffer a decline in unrealized gains on the value of securities they hold as investments. The upward movement of interest rates may help insurers improve their profitability in the long term, but it has a downside in the short term. When rates go up, the value of insurers’ bond portfolios goes down as existing bonds become less attractive than new bonds that offer relatively higher rates. Although this decrease in value does not affect net income because it is recognized as unrealized gains or losses, it reduces insurers’ book value or net worth.