The South Korean insurance industry is put in a dilemma. As the Korean insurance market has reached a saturation point, domestic insurance companies have been seeking to expand their business overseas. However, they have made little progress so far, according to a recent study.
Jeon Yong-sik and Kim Yu-mi, analysts at the Korea Insurance Research Institute (KIRI), released a report on insurers’ overseas expansion on May 12 and said, “The premium income of life insurance products will decrease by 1.7 percent a year on average from 2018 to 2022. The average annual growth rate of original premiums of non-life insurance products is also expected to be flat at 0.4 percent.”
South Korean insurance companies have a meager share of the global insurance market. For the 109 biggest insurers of the world which made the Fortune Global 2000 in 2017, overseas business accounted for 41.6 percent, 28.6 percent and 51.5 percent of the total assets of life insurers, non-life insurers and those engaged in both life and non-life insurance, respectively.
However, comparable shares for domestic insurers are 0.5 percent for life insurers and 1.8 percent for non-life insurers.
The research team said, “With stronger regulations on the risk-based capital ratio, such as the IFRS 17 and K-ICS, and shrinking profits from the domestic market, South Korean insurance firms are losing their ability to expand business overseas. They are less incentivized to build local subsidiaries due to the time and costs required to set up insurance business infrastructure.”
However, domestic insurers fared relatively well in overseas sales in 2018. Their operating profit and net profit all turned around from a deficit to a surplus, though the total number of their overseas offices and branches decreased from 85 to 82.
Ten domestic insurance companies, including three life insurers and seven non-life insurers, had 40 offices, 32 local subsidiaries and 10 branches as of 2018.
The combined operating profit of the overseas offices, subsidiaries and branches came to US$23.50 million (27.75 billion won), up as much as US$49.30 million (58.21 billion won) from a loss a year earlier. The net profit also recorded US$23.70 million (27.98 billion won), showing a whopping 44.60 million (52.65 billion won) growth from a loss a year ago.