Preliminary Business Results of Insurers in Korea for the First Nine Months of 2022

Insurance carriers in Korea reported KRW 7,761.2 billion in net income for the first nine months of 2022, up 1.7% from a year earlier. Life insurers’ results stood in stark contrast to those of non-life insurers. The former continued to suffer a large decline in net income while the latter performed strongly in terms of bottom-line growth. Life insurers saw their net income decrease by 20.3% year on year to KRW 2,943.7 billion for the nine-month period as they experienced the double whammy of widening underwriting losses and falling investment gains. A decline in premium income aggravated their underwriting results, and their investment operations also performed weakly due to a reduction in gains on disposition of financial assets.

On the other hand, the non-life insurance sector delivered strong results, with their net income surging by 22.3% to KRW 4,817.5 billion for the first nine months of 2022. This robust performance was backed by improvements in both underwriting and investment gains. Non-life insurers’ underwriting losses narrowed thanks to a drop in long-term insurance loss ratios amid a relatively benign claim environment. Their investment results also improved on the back of rising foreign currency translation gains due to a strong US dollar.   

         
 volume of the insurance market increased by 0.5% to KRW 156.3 trillion in the January – September period of 2022. The growth was fueled by non-life insurance sector. Non-life insurance premiums amounted to KRW 78.6 trillion, up 7.2% from a year earlier. Traditionally, non-life premiums would be smaller than life premiums, but that has not been the case since 2022 due to the continued growth of the non-life sector. General P&C insurance premiums increased by 9.5%, while long-term and motor premiums grew by 4.8%, and 3.0%, respectively. Meanwhile, the non-life industry witnessed an unusually high growth rate of 33.5% for retirement annuity premiums, which was led by three insurers – DB Insurance, KB Insurance, and Meritz Fire & Marine Insurance.   

In contrast, life insurance premiums shrank by 5.5% to KRW 77.7 trillion mostly because of a sharp decrease in variable life premiums. Savings insurance sales also declined, with premium income falling by 6%. Retirement annuity and protection-type insurance premiums grew by 3.3% and 2.6%, respectively.

The profitability ratios of the insurance industry improved in the first nine months of 2022 compared to the same period of the prior year. Its return on assets (ROA) ratio rose by 0.01%p to 0.78%, and its return on equity (ROE) ratio jumped by 2.12%p to 9.45%. Non-life insurers reported higher ratios than life insurers as below:

As of the end of September 2022, insurers reported a decrease in assets compared to nine months earlier. Their total assets declined by 3.9% to KRW 1,305.8 trillion, which is broken down into KRW 937.2 trillion for life insurance and KRW 368.6 trillion for non-life insurance. Life insurers continued to dominate insurance industry assets, accounting for 72% of the total, but their assets diminished by 5.6%, while non-life assets increased marginally.

Over the same nine-month period, the insurance industry saw its total shareholders’ equity dip by 37.4% to KRW 84.3 trillion as of late September 2022 because rising interest rates caused insurers to suffer a reduction in unrealized gains on the value of securities they hold as investments. The coupon rate on the ten-year treasury bond shot up to 4.10% at the end of September 2022 from 2.25% at the end of December 2021.

In the long-term, the gradual upward movement of interest rates may help insurers improve their profitability because their investment portfolio yields increase in step with interest rate rises. However, insurers may experience setbacks from rate hikes in the short term. When rates go up, the value of their 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. Over time, insurers can benefit from higher interest rates as they will have the opportunity to invest at higher rates and improve their overall profitability.