A Step Closer to the Emergence of a Specialized Reinsurance Company... Will the 'Second Korean Re' Appear? (Comprehensive)

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 reinsurance company, is anticipated. Korean Re, a native company, virtually monopolizes the reinsurance market, while financial authorities are currently 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 undergo rapid changes.

According to financial authorities and the insurance industry on the 6th, the revision process of related regulations such as 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 of insurers with 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 and reducing the required capital.

Insurers have so far issued hybrid capital securities or subordinated bonds to increase capital, which are means to increase available capital, whereas co-reinsurance is a method to reduce required capital.

Additionally, the 'Reinsurance Industry System Improvement Task Force (TF),' involving authorities, the Insurance Association, and reinsurers, plans to submit a bill to amend the Insurance Business Act containing reinsurance industry system reform measures to the National Assembly by the end of the year.

The core of the bill is to classify reinsurance as a separate business, easing licensing requirements and regulations on business activities, aiming to lower entry barriers to the reinsurance market.

Many insurance companies holding reinsurance licenses are not currently operating reinsurance businesses, so the plan is to ease licensing requirements for reinsurance to allow new players to enter the market more easily.

The industry expects new reinsurers to emerge once these regulatory reforms are finalized. The most likely candidate is KDB Life, 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. Both parties are discussing investing about 550 billion KRW in share acquisition and capital increase.

In particular, JC Partners is reportedly planning to collaborate with the U.S. PEF Carlyle for capital participation and business alliances to transform KDB Life into a reinsurer. 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. The domestic reinsurance market is dominated by Korean Re, which holds more than half of the reinsurance 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, from the insurers' perspective, it is not cost-effective compared to other capital-raising methods, so there are limits to their participation."