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The South Korean non-life insurance sector has a stable outlook, despite operating and regulatory environments that remain challenging for insurance companies, a report by global ratings agency AM Best has outlined.
The report, titled “Market Segment Outlook: South Korea Non-Life,” reveals that although the overall market is facing increased top-line pressures and tightening regulations, the industry still expects improved underwriting profitability in the coming year, driven by premium hikes announced by South Korea’s regulator in September 2018, as well as the cooling-down of competition in the long-term business line.
With regards to underwriting performance, the sector’s overall combined ratio has faced two offsetting trends in the past four years: a decreasing loss ratio, attributed to premium hikes in the long-term and automobile insurance lines, as well as an increasing expense ratio, resulting from heightened competition in the long-term insurance line.
The market’s growth had remained strong until 2012 but slowed down in recent years due to stagnant growth in its largest business line – long-term insurance, which includes various personal line products such as accident, health, drivers, savings, and annuities, while the overall market growth has been at approximately 2% annually, excluding pensions.
Slower growth in motor insurance, the second-largest business line, caused overall market growth to further decelerate to 1.4% year-on-year for the first half of 2018. The main source of profits for South Korea’s non-life insurers is investment income, and companies’ investment returns have showed a slightly declining trend over the past five years, the report said.
“Under current market situations with a lack of strong growth drivers, product innovation can be a key differentiator not just to fight for market share, but also to secure higher profitability,” AM Best said. “Insurers also are putting a lot of effort into optimizing operational processes and strengthening underwriting.”
