Will the 'Second Reinsurance Company' Break Korean Re's Monopoly in the Second Half?

Institutional Reform Including Introduction of Joint Reinsurance
Leading Candidate for Sale of KDB Life Insurance
"Incentives Needed for Joint Reinsurance Among Insurers"

[Asia Economy Reporter Oh Hyung-gil] 'Will a second Korean Re be born?'

As the reinsurance market, known as 'insurance for insurance,' is set for restructuring, the emergence of new challengers aiming to break the dominance of Korean Re, the only dedicated domestic reinsurer, is anticipated. Korean Re, a native company, virtually monopolizes the reinsurance market, while financial authorities are pushing to ease reinsurance licensing requirements and introduce a new business model of co-reinsurance. Attention is focused on whether the domestic reinsurance industry landscape centered on Korean Re will rapidly change.

According to financial authorities and the insurance industry on the 6th, the revision process of related regulations, including the Insurance Business Supervision Regulations for the introduction of co-reinsurance, is expected to be completed as early as the end of this month.

Co-reinsurance is a system for restructuring insurance liabilities ahead of the adoption of the new International Financial Reporting Standard (IFRS17). While traditional reinsurance involves sharing insurance risks between insurers and reinsurers, co-reinsurance means transferring other risks such as interest rate risk to reinsurers. It is expected to improve the solvency ratio (RBC ratio) by transferring the interest rate risk of previously sold high-interest insurance policies, thereby reducing the required capital.

The 'Reinsurance Industry System Improvement Task Force (TF),' consisting of authorities, the Insurance Association, and reinsurers, plans to submit a bill to amend the Insurance Business Act containing reinsurance system reform measures to the National Assembly by the end of the year. The core is to classify reinsurance as a separate business, easing licensing requirements and regulations on business activities, aiming to lower barriers to entry into the reinsurance market.

The industry expects new reinsurers to emerge once the system reform is finalized. The most likely candidate is KDB Life Insurance, which is currently undergoing a sale process.

Last month, the Korea Development Bank selected the private equity fund (PEF) JC Partners as the preferred bidder for the sale of KDB Life Insurance. Both parties are discussing an investment plan of about 550 billion KRW for share acquisition and capital increase.

In particular, JC Partners is reportedly planning to collaborate with the U.S. PEF Carlyle to convert KDB Life into a reinsurer through capital participation and business partnerships. Carlyle has been known to have been discussing cooperation with domestic insurers since November last year to enter the co-reinsurance market.

Existing reinsurers may also enter the co-reinsurance market. In the domestic reinsurance market, Korean Re holds over 80% of premiums, while global reinsurers such as Munich Re, Swiss Re, SCOR, RGA, Hannover Re, Generali, and ACR have also entered.

Experts point out the need for incentives to encourage insurers to participate in co-reinsurance.

A reinsurer official said, "Once the co-reinsurance market opens, reinsurers will have no choice but to consider participating in the business," adding, "However, for insurers, it is not cost-effective compared to other capital-raising methods, so participation has its limits."