Due to Local Insurance Market Saturation
South Korea’s top three life insurance companies, including Samsung Life Insurance Co., have executed emergency management, such as cost reduction, from the beginning of the year and lowered their growth objectives for this year compared to a year earlier as well. It is exceptional that they set lower targets themselves than a year ago, though new sales are decreasing every year due to the domestic insurance market saturation.
The country’s major life insurance firms, such as Samsung Life Insurance and Hanwha Life Insurance Co., lowered their sales goal for this year in terms of monthly initial premium by 2 to 3 percent compared to a year earlier, according to insurance industry sources on Jan. 31. An initial premium is an amount paid by customers at the inception of an insurance contract and it is one of key indicators judging growth potential.
For Samsung Life Insurance, the initial premium has decreased every year after peaking in 2014 but it has never set a minus growth target. An official from a large life insurance company said, “The life insurance market is expected to show a minus growth again this year as the past few years but it is rare that the top three life insurance companies all internally set a minus growth target. Life insurance firms internally say that they put up a good show compared to their competitors even with a reduction in premium sales by 2 percent from last year. In fact, a report recently released by the Korea Insurance Research Institute also said that the premium income of life insurance companies this year would fall by 3.8 percent from a year ago.
Market experts say that the top three life insurance companies have lowered their internal growth target from the previous year considering the fact that insurance products no longer sell owing to the market saturation and weaker domestic demand and the trend is becoming permanent. In particular, the trend of growth slowdown is forecast to be accelerated as they cannot sell saving insurance products, which are recognized as debts, with the introduction of the new financial reporting standard IFRS 17. The initial premiums of Samsung Life Insurance in general accounts, except for variable insurance and retirement pension, continuously fell from 2.47 trillion won (US$2.22 billion) in 2015 to 1.47 trillion won (US$1.32 billion) in 2016 and 1.40 trillion won (US$1.25 billion) in 2017. The company’s first premiums came to 1.20 trillion won (US$1.08 billion) as of the end of October last year so it can record a zero growth or lower growth than the previous year even combining the figure of the end of the year. It means that the revenue from initial premiums has shown a steady decrease over the past four years after peaking in 2014.
An official from the insurance industry said, “Life insurance companies are suffering from a minus growth as they focused on selling coverage insurance products with the introduction of the IFRS 17 but failed to increase the sales further.” The country’s top 10 life insurance firms collected a total of 732.60 billion won (US$658.52 million) of first premiums from coverage insurance products as of September last year, down as much as 22.1 percent from 940.60 billion won (US$845.48 million) at the same period a year earlier. Hanwha Life Insurance saw the figures plunge by 42 percent from 193.30 billion won (US$173.83 million) to 112.20 billion won (US$100.90 million) over the same period, while Kyobo Life Insurance Co. had a drop by 30.9 percent, or 59.60 billion won (US$53.59 million), from 193.10 billion won (US$173.62 million) to 133.50 billion won (US$120.03 million).
With coverage insurance continuing to have a minus growth, not only business indicators but also a risk-based capital (RBC) ratio, one of financial soundness indicators, of life insurance firms are more likely to have a bigger decrease than last year. In addition, small and mid-size life insurance companies can have more difficulty surviving.