The Korean insurance industry reported KRW 5,614.4 billion in net income for the first six months of 2022, down 1.1% from a year earlier. The industry delivered sharply divided results: the life insurance sector suffered a large decline in net income while non-life insurers continued to perform strongly in terms of bottom-line growth.
Life insurers experienced significant setbacks, with their net income shrinking by 30.7% to KRW 2,180.7 billion in the first half of 2022. They faced the double whammy of widening underwriting losses and falling investment gains. A decline in premium income aggravated underwriting results of life insurers, and their investment operations also performed weakly, driven by decreases in dividend income and gains on disposition of financial assets. The drop in dividend income reflected the base effect from a massive dividend payout to a major life insurer from Samsung Electronics in the first half of the previous year.
By contrast, non-life insurance companies saw their net income soar by 35.7% to KRW 3,433.7 billion in the six-month period ending June 30, 2022. This strong performance was backed by improvements in both underwriting and investment gains. The non-life industry had a big turnaround in its technical results after years of underwriting losses. Many non-life insurers delivered better underwriting performance compared to a year earlier thanks to improving loss ratios of long-term and motor insurance. During the pandemic, they benefited from fewer claims amid decreases in road traffic and non-urgent hospital visits. Their investment results also improved on the back of rising foreign currency translation gains due to a surging US dollar.
In terms of total premium income, the insurance market contracted, with premiums declining by 1.7% year on year to KRW 103.4 trillion in the January – June period of 2022. Life insurance premiums fell by 9.1% to KRW 50.6 trillion mostly because of a sharp reduction in savings insurance sales. Premium income from savings and variable life insurance plummeted by 17.5% and 26.5%, respectively. Retirement annuity premiums also diminished, albeit marginally, while premiums from protection-type insurance grew by 2.2%.
On the other hand, non-life insurers recorded positive top-line growth, with their premium income increasing by 6.6% to KRW 52.8 trillion. Traditionally, non-life premiums had been outweighed by life insurance premiums, but that trend has been reversed since 2022 due to the continued growth of the non-life sector. General P&C insurance premiums grew by 8.4% in the first half of 2022, while long-term and motor premiums rose by 5.1%, and 3.0%, respectively. Meanwhile, the non-life industry witnessed an unusually high growth rate of 23.9% for retirement annuity premiums, which was led by three insurers – DB Insurance, KB Insurance, and Meritz Fire & Marine Insurance.
The profitability ratios of the insurance industry diverged in the first six months of 2022. Its return on assets (ROA) ratio fell by 0.02%p to 0.84%, whereas its return on equity (ROE) ratio went up by 1.69%p to 9.83%. Non-life insurers reported higher ratios than life insurers as below:
As of the end of June 2022, insurers reported a decrease in assets compared to six months earlier. Their total assets declined by 3.8% to KRW 1,306.5 trillion, which is broken down into KRW 942.4 trillion for life insurance and KRW 364.1 trillion for non-life insurance. Life insurers experienced a greater contraction in assets compared to non-life insurers, but the former continued to dominate insurance industry assets, accounting for 72% of the total.
Over the same six-month period, the insurance industry saw its total shareholders’ equity dip by 30.2% to KRW 93.9 trillion as of late June 2022 because rising 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.