Samsung Electronics vice chairman Lee Jae-yong had a surprise meeting with the heads of Samsung Group’s financial affiliates earlier this month, it was known belatedly.
Lee had a meeting with the presidents of the group’s financial affiliates, including Samsung Life Insurance Co., Samsung Fire & Marine Insurance Co., Samsung Card Co. and Samsung Securities Co., on Aug. 8.. He reportedly asked them questions about the effects of a prolonged period of low interest rates on insurance companies’ earnings and their new growth engines.
Lee's meeting with the presidents of the group’s financial affiliates is seen as reflecting his concern about their end-of-year results. Samsung Life, Samsung Fire & Marine and Samsung Securities are all struggling with growing risks, such as market saturation, various regulations and low interest rates.
Samsung Life and Samsung Fire & Marine remain the market leader, but there has been a mounting sense of crisis in recent years due to various regulations and low interest rates amid market saturation.
Samsung Life saw its net profits decrease to 794 billion won (US$654.41 million) in the first half of this year, falling short of half of 1.73 trillion won (US$1.43 billion) at the end of last year, as low interest rates dragged down its earnings from asset management. With a sharp decline in Samsung Life’s profits, the proportion of the country’s three largest life insurance companies to total net profits fell to 55.5 percent in the first half from 64 percent last year.
The problem is that Samsung Life’s poor performance can be protracted. An official who attended the meeting said, “For Samsung Life and Samsung Fire & Marine, we mainly discussed the effects of low interest rates on performance and countermeasures.”
There is growing concern that the growth potential of life and fire and marine insurance firms have reached the limit as the combined premium income of life insurance companies is expected to shrink 3.4 percent on year to 107.09 trillion won (US$88.23 billion) this year, according to the Korea Insurance Research Institute (KIRI). In addition, the sales of savings insurance products, which are considered as debts with the introduction of the new international accounting standard IFRS17, have fallen and there are only a limited number of insurance products to sell.
Samsung Fire & Marine is also struggling with poor performance because of a rapidly growing loss ratio of car insurance products and medical indemnity insurance products. In particular, the company shows a remarkable drop in earnings as financial authorities have restricted premium hikes to minimize their impact on consumer prices despite the significant rise in loss ratio. The company’s net profits recorded 1.07 trillion won (US$884.32 million)at the end of last year but fell to 437.10 billion won (US$360.17 million) in the first half of this year.
Some said Lee held the meeting to personally grasp the effects and the possibility of a large-scale Japanese capital leaving the country on cool relations between South Korea and Japan caused by Japan’s export retaliations and South Korea’s termination of the General Security of Military Information Agreement (GSOMIA).