No Exit for Insurers
Korea’s life and non-life insurance companies are likely to post their worst performance this year due to the “three lows” – a low birthrate, low economic growth, and low interest rates.
Financial Statistics Information System (FSIS), operated by the Financial Supervisory Service (FSS), reported on Nov. 10 that the 24 domestic and foreign life insurance companies operating in Korea received 52.2 trillion won in premium incomes in the first half of the year, down 1 percent from last year. As growth in new contracts is considerably slowing in the second half, they are highly likely to register negative growth in annual premium incomes.
If this trend continues, the premium income of life insurance companies will decrease for three consecutive years for the first time since 2000, when the statistics on premium incomes of insurance companies started to be collected. Prolonged low interest rates have reduced the interest rate merits of insurance policies, greatly dampening demand for insurance.
Besides, with the new International Financial Reporting Standard (IFRS 17) due to be introduced in 2022, insurers have also refrained from selling high-risk policies and reduced supplies. Particularly, large life insurance companies, which are much dependent on insurance policies of high interest rates as well as fixed interest rates, take a direct hit from the tide of low interest rates.
Insurers’ operating performances are getting worse and worse. Their net profit plunged 32.4 percent from last year to 2.1 trillion won in the first half of the year. It is the lowest in 6 years since 2013 when they recorded a negative growth of 34.6 percent.
Non-life insurance companies are no exception. Their net profits plummeted to 1.5 trillion, down 29.5 percent from last year. In addition, they saw their assets grow merely by 7.5 percent, the lowest in 17 years since 2002 (6.3 percent). Most of all, they have excessively competed with each other to expand their market shares, which resulted in a soaring loss ratio.
Kim, Se-joong, a researcher at the Korea Insurance Research Institute (KIRI) said, “Insurers need to shift their top management priority from growth to risk management.” It means that they have to drastically adjust policies that show high loss ratios or are likely to bring negative margins. They first must break away from their dependence on high-cost channels based on planners.