A global consulting firm warned that the domestic insurance market is reaching saturation. Moreover, small and mid-size insurance companies, which suffer from performance deterioration, are expected to stand on a delicate precipice as the introduction of new International Financial Reporting Standard (IFRS 17) will put a heavier capital expansion burden on them. Some say that MG Non-life Insurance Co. and KDB Life Insurance Co., which have difficulty in increasing investment from major shareholders, are highly likely to be put up for sale in the merger and acquisition (M&A) market.
In a financial report released on Nov. 7, McKinsey & Company warned, “The emerging insurance markets, such as China and Brazil, marked a high growth of 12 percent to 15 percent on-year last year, but the United States, South Korea and Japan, which have already a matured market, had only 1 percent to 2 percent of growth over the same period. The markets of South Korea and Japan, which have a rapid pace of aging population, will continuously show a slowdown of growth.”
In fact, earnings and original premiums in the domestic insurance industry are steadily falling. The Korea Insurance Research Institute recently gave a worrying outlook that Korean insurers’ earnings and original premiums will decrease 0.8 percent further next year, showing the drop for three years in a row. In particular, it predicted that the income and loss before income taxes of life insurance companies and non-life insurance companies in 2022 will fall 57 percent, or 6 trillion won to 3.4 trillion won (US$5.36 billion to 3.04 billion), and 75 percent, or 5.7 trillion won to 4.3 trillion won (US$5.1 billion to 3.84 billion), respectively, compared to 2017. As the introduction of the IFRS 17 has dragged down the sales of saving insurance products, both life insurance and non-life insurance companies are experiencing slowing growth.
An official from the insurance industry said, “With the fall in guaranteed minimum interest rates due to low interest rates, introduction of the IFRS 17, reorganization of sales commission systems and reduction of tax benefits, the purchase rate of life insurance and general saving insurance products in the non-life insurance sector will greatly decrease. In addition, the original premiums of non-life insurance companies practically show stagnation with an annual average growth of 0.4 percent. As the insurance purchase rate per household surpassed 90 percent, the insurance market has reached the saturation point. The industry is seeking for a new industry, like pet market, but it is hard to blindly increase the market because the ratio of risks has not been proved yet.”