Both life and non-life insurers in South Korea are expected to turn in their worst performances ever this year due to the ‘three lows’ – low birth rates, low economic growth, and low interest rates.
Data from the Financial Statistics Information System (FSIS) of the regulatory agency the Financial Supervisory Service (FSS), showed that the 24 domestic and foreign life insurers in Korea brought in KRW52.2 trillion (US$44.88 billion) in premium income in the first half of the year, down 1% year-on-year, Business Korea reported. With new sales slowing in the second half, the sector is likely to register negative growth in annual premium incomes, the report said.
If the trend continues, life insurers’ premium incomes will have shrunk for three consecutive years since premium income statistics were first collected in 2000, the report said. Prolonged low interest rates have reduced the interest rate merits of insurance policies, which, in turn, lowers demand for insurance, it added.
Furthermore, with IFRS 17 on the horizon, insurers have become more averse to selling high-risk policies and reduced supplies. Major life insurance companies, which are quite dependent on insurance policies of high interest rates as well as fixed interest rates, are the most vulnerable to low interest rates.
Profitability has also declined, with insurers’ combined net profits in the first half decreasing 32.4% from last year. This, the report said, leaves them at their lowest level since 2013.
As for non-life insurers, net profits decreased to KRW1.5 trillion, down 29.5% from last year. Asset growth was also at its slowest since 2002, at 7.5%. The report also cited intensifying competition between firms, which has resulted in a rapid rise in loss ratios.