South Korea's insurance firms suffered a drop in their net profits in the first quarter of the year due to an increase in working expenses caused by intensifying competition in long-term insurance products.
Domestic insurance companies recorded 1.98 trillion won (US$1.67 billion) in net profit in the first quarter, down 130.10 billion won (US$109.51 million), or 6.2 percent, compared to a year earlier, according to the preliminary data from the Financial Supervisory Service (FSS) released on May 26.
The combined net profit of non-life insurance firms operating in South Korea decreased 162 billion won (US$136.36 million), or 18.4 percent, to 718.90 billion won (US$605.13 million) in the first quarter.
Non-life insurers saw their operating profits from investment increase but their working expenses grew 242.80 billion won (US$204.38 million) because of competition in sales of long-term insurance products. They also suffered an increase in insurance operating loss.
On the other hand, the combined net profit of life insurance firms came to 1.26 trillion won (US$1.06 billion)over the same period, up 31.90 billion won (US$26.85 million), or 2.6 percent from the same period a year ago. Figures show that life insurers' profits were driven by operating income from investments, including gains from the disposal of bonds and higher appraisal profits thanks to a decline in interest rates, despite losses in insurance sales.
The average return on assets (ROA) and return on equity (ROE) of non-life insurers and life insurers each fell by 0.08 percentage points and 1.21 percentage points, respectively, to 0.68 percent and 6.88 percent in the first quarter from a year earlier. The total assets of insurance companies stood at 1,180.41 trillion won (US$994.45 billion) as of the end of March, up 67.82 trillion won (US$57.13 billion), or 6.1 percent, from the same month a year earlier.
Their equity capital grew 15.98 trillion won (US$13.46 billion), or 15.6 percent, to 118.29 trillion won (US$99.65 billion) owing to capital expansion and the increase in earned surplus. Insurers' premium income in the first quarter increased 0.4 percent on year, while their net profit dropped 6.2 percent from higher spending on working expenses caused by competitive sales and higher loss ratio.
"Uncertainty of the finance market is growing due to the trade conflict between the United States and China. Insurers, instead of competing for sales, need to heighten internal competitiveness and enhance risk management amid market volatility," the FSS said.