Korean Insurers Having Difficulty in Expanding Business Overseas

South Korean insurance companies recorded a net profit in their overseas operations last year, the first time in eight years. But overseas business still has a small proportion in their operations compared to global insurance firms. Experts point out that the government needs to ease regulations, including financing, in order to vitalize Korean insurers’ overseas operations.

According to a report from the Korea Insurance Development Institute (KIRI), overseas assets of South Korean non-life insurers that are included in the Forbes Global 2000 list account for a mere 1.8 percent of their total assets.

Comparable figures for non-life insurance firms in Canada, England, Japan and the United States were 66 percent, 51.6 percent, 41 percent and 18.4 percent, respectively. Life insurance companies in Canada, Hong Kong and the Netherlands are more active overseas than South Korean insurers, although they have smaller assets. The assets of Canadian life insurers stand at US$192.50 billion (230.04 trillion won) but overseas business accounted for 65 percent of their assets.

The total assets of overseas branches of domestic insurance firms came to US$4.59 billion (5.48 trillion won) as of 2018. The figure is about 0.7 percent of the total assets (777.70 trillion won or US$650.79 billion) of the insurers which have entered the global market. It saw US$238 million (284.41 billion won) decrease compared to last year due to the shutdown of branches and insurance payments. The gross debt decreased US$116 million (138.62 billion won)because of a fall in policy reserve compared to a year earlier, while the total capital dropped US$122 million (145.79 billion won) owing to the liquidation of branches. However, the net profit increased US$44.60 million (53.30 billion won) to US$23.70 million (28.32 billion won) from a loss of 20.90 million (24.93 billion won) a year ago. South Korean insurers have succeeded in turning a profit for the first time in eight years after 2010.

Domestic insurance companies prefer to set up a joint venture or make an equity investment with local financial firms to solely establish overseas branches and subsidiaries due to stronger solvency regulation and lower profits. The problem is that they have difficulty in financing because of the government’s strict regulations. Experts point out that South Korean firms face greater restrictions on the purpose and the size of bond issuance compared to other major countries, such as the United States, Japan and the United Kingdom. Japan has relaxed restrictions on the type of business of acquired firms and has no restrictions on the purpose of subordinated bond issuance for financing.

However, South Korea allows insurance companies to issue bonds only when they meet the financial stability standards or intend to maintain the suitable liquidity. It also restricts bond issuance limits to equity capital as of the end of the previous quarter. Jeon, Yong-sik, a KIRI analyst said, “The government needs to ease restrictions on financing of insurers in order for them to make an equity investment and merge and acquire local insurance and financial firms. It also needs to consider ways to reflect the effect of diversification of risks into solvency margin when insurance companies try to geographically spread risks by expanding overseas business. In addition, it is needed to exceptionally allow offshoring when insurers seek to go abroad by reforming regulations on offshoring of financial institutions.”