Korean Reinsurance Market Update
In 2022, the total inward reinsurance premiums written by (re)insurers operating in Korea amounted to KRW 14.9 trillion, representing a growth of 15.3% compared to the previous year, according to the data compiled by the Financial Supervisory Service (FSS). This growth was driven by an increased demand for reinsurance and coinsurance among cedants in the run-up to the implementation of the Korean Insurance Capital Standard (K-ICS). Domestic reinsurance transactions accounted for 77.9% of the total inward reinsurance premiums in 2022, while the remaining involved cross-border transactions.
The trend of cedants reducing their retention levels in Korea continued in 2022. They are increasingly relying on reinsurance capacity, resulting in the hardening of premium rates and tighter underwriting guidelines. Following years of increases, their average retention rate has been falling since 2020 when insurers encountered a series of substantial losses, such as fires at local chemical plants. They have been compelled to cede more risks to their treaties to mitigate the volatility of their business results, but they have faced challenges in securing the necessary proportional capacity due to poor treaty results.
Currently, there are nine professional reinsurers operating in the market, along with 17 non-life direct insurers writing reinsurance business. In Korea, direct insurers who have obtained an insurance business license are deemed to have also obtained a reinsurance business license for the relevant type of insurance under the Insurance Business Act. In 2022, direct insurers wrote inward reinsurance premiums of about KRW 1.82 trillion, while professional reinsurers wrote reinsurance premiums of KRW 13.11 trillion, which translated into a market share of 87.8% for professional reinsurers.
Although the Korean reinsurance market was fully liberalized in 1997, Korean Re still writes the greatest volume of local reinsurance premiums thanks to its ability to offer high-quality services to cedants, including the provision of premium quotations for novel or complex risks that cedents are unable to underwrite on their own. It also leverages its substantial retrocession premium volumes to offer competitive treaty terms to its clients.
The reinsurance market in Korea has experienced steady growth in terms of market size and the variety of market players since early 2000s when the Financial Supervisory Service (FSS) recommended that foreign reinsurers switch their representative offices in Korea to branches and manage all their Korean business within the country. This recommendation suggested that representative offices should not engage in reinsurance marketing.
As a result, major reinsurers such as Swiss Re and Munich Re upgraded their representative offices to branches in compliance with the regulatory guidance. Foreign reinsurance companies may operate in Korea as representative offices or branches, but if they wish to conduct business from an office in Korea, they must establish a licensed branch in the country.
Currently, reinsurance is classified as a type of non-life insurance for licensing and operational purposes. However, the Financial Services Commission (FSC) is proposing a new approach by introducing a separate license for reinsurance. This license will be divided into sub-licenses for life, non-life, and third-sector insurance, each with a minimum capital requirement of KRW 10 billion. A full license will require a minimum capital of KRW 30 billion. These new licensing requirements will only apply to newly established (re)insurers.
This regulatory change is aimed at bringing more capacity and competition to the reinsurance market by reducing the minimum capital requirement for non-life reinsurers from the current KRW 30 billion to KRW 10 billion. The FSC also intends to establish separate operational requirements for reinsurers and direct insurers, with the goal of implementing a more appropriate regulatory framework specifically tailored for reinsurers.