South Korea’s life insurance companies saw their net profits plunge more than 20 percent in the first quarter compared to the same period last year. This is largely due to the fact that insurers have reduced the sale of saving insurance products to brace for the introduction of the new International Financial Reporting Standard (IFRS 17).
According to the Financial Supervisory Service (FSS) on May 23, the combined net profits of domestic life insurance firms came to 1.23 trillion won (US$1.14 billion) in the first quarter, down 21.7 percent from a year earlier.
This is because the income of saving insurance premiums dropped 23.6 percent on-year to 8.63 trillion won (US$8.01 billion). The FSS said life insurance companies dramatically decreased the sale of saving insurance products to prepare for stricter capital regulations due to the IFRS17. The new IFRS 17 accounting standard becomes effective for the 2021 reporting year. Since it changes the evaluation standard of insurance debts from prime cost to market cost, the size of insurance companies’ debts can grow.
In addition, theamount ofclaim payment rose 1.9 trillion won (US$1.76 billion) with the latest campaign to return hidden claim paid. The campaign, which has begun in December last year, is designed to return midway benefits, matured benefits, dormant benefits and unclaimed death benefit.
Accordingly, insurance firms’ profitability has worsened. The return on assets (ROA) stood at 0.59 percent, down 0.21 percent points at the first quarter last year. The return on equity (ROE) also decreased 2.38 percent points to 7.03 percent.
Meanwhile, large life insurance companies, such as Samsung, Hanwha and Kyobo, accounted for 58.8 percent of the total market share, followed by foreign firms with 23 percent, small and mid-sized ones with 11.8 percent and bank-based ones with 6.4 percent. An official from the FSS said, “Large and foreign life insurance companies saw their net profits drop, while small and mid-sized and bank-based life insurance firms saw their net profits grow.”