Preliminary Business Results of Insurers in Korea for the First Nine Months of 2021
Insurers in Korea recorded the strongest business results in five years for the first nine months of 2021, as they benefited from improving loss ratios, rising interest rates, and robust stock market performance. For the January to September period of the year, they reported KRW 7,630.5 billion in net income, up 37.3% from the same period of the previous year.
Non-life insurance companies saw their net income surge by 62.6% to KRW 3,939 billion for the nine-month period amid decreasing underwriting losses. The improvement in underwriting results reflected a drop in loss ratios of motor and long-term lines of business and the base effect of significant losses from an explosion at a local chemical plant and typhoons in the previous year. 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. Favorable investment performance also boosted their overall net income results.
Likewise, life insurers delivered better underwriting performance thanks to expense cuts as well as rising stock prices and interest rates, which reduced their burden on guaranteed reserves. Their investment returns marginally declined year on year but remained fairly strong, bringing their collective net income for the nine-month period of 2021 to KRW 3,691.5 billion, up 17.8% from a year earlier.
In terms of premium income, insurers in Korea continued to show stable growth, with the total premiums growing by 2.1% to KRW 155.6 trillion for the first three quarters of 2021. Life insurers reported KRW 82.2 trillion in premium income, up 0.9% from a year earlier. The growth was driven by premium income from variable and protection insurance. Variable insurance premiums increased by 9.6% on the back of a buoyant stock market, while protection insurance premiums expanded by 2.4%, with life insurers focusing their marketing efforts on selling protection policies.
Non-life insurers posted a higher premium growth of 3.5%, with their premium income amounting to over KRW 73 trillion. General P&C insurance premiums soared by 8.9%, with long-term and motor premiums rising by 5.3% and 3.8%, respectively. However, retirement annuity premiums declined by 15.2%.
Insurance companies saw their profitability ratios improve on the back of strong net income growth. The return on assets (ROA) ratio of the industry rose by 0.18%p to 0.77%, while the return on equity (ROE) ratio increased by 1.88%p to 7.33%. Non-life insurers reported higher ratios than life insurers as below:
Backed by premium income growth, insurers reported a modest increase in assets. As of the end of September 2021, their total assets grew by 1.3% year on year to KRW 1,338.3 trillion, which is broken down into KRW 980.4 trillion for life insurance and KRW 357.9 trillion for non-life insurance. Non-life insurers posted a higher asset growth rate compared to life insurers, but the latter continued to dominate insurance industry assets, accounting for 73.3% of the total.
Despite strong net income growth, the insurance industry saw its total shareholders’ equity diminish by 6.2% to KRW 134.4 trillion as 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.