Insurance Companies Smiled in the First Half... But Variables Like Corona and Interest Rate Hikes Remain

Double-Digit Performance Improvement for Life and Non-Life Insurers in the First Half of This Year
Life Insurers See Increased Sales of Protection Insurance and Improved Investment Gains
Life Insurers Stabilize Auto Insurance Loss Ratios and More

[Asia Economy Reporter Ki Ha-young] Insurance companies achieved significantly improved performance in the first half of this year. Life insurers saw increased sales of protection-type insurance and improved investment gains, while non-life insurers benefited from the stabilization of automobile insurance loss ratios due to the prolonged COVID-19 pandemic. However, since this is a reflection effect caused by COVID-19, the future performance is expected to be influenced by the course of the pandemic and interest rate hikes.

According to the industry on the 18th, major insurers posted double-digit growth in the first half of this year. In particular, the performance improvement of non-life insurers stood out. Samsung Fire & Marine Insurance recorded a net profit of 744.1 billion KRW in the first half, a 71.7% increase compared to the previous year. Its pre-tax profit on a consolidated basis for the first half reached 1.032 trillion KRW, surpassing last year's annual profit within just six months.

During the same period, Hyundai Marine & Fire Insurance achieved a net profit of 249 billion KRW, up 35.5% year-on-year, and DB Insurance posted 425.6 billion KRW, a 21.8% increase. KB Insurance and Meritz Fire & Marine Insurance also recorded net profits of 141.1 billion KRW and 291.9 billion KRW, up 20.9% and 36.8% respectively compared to the first half of last year.

This improvement is due to a decline in loss ratios, which indicate insurers' operational efficiency. As social distancing measures intensified, vehicle movement and hospital visits decreased compared to previous years, leading to improved loss ratios in automobile insurance and others. In fact, Samsung Fire & Marine Insurance's combined ratio (the sum of loss ratio and expense ratio) fell by 2.9 percentage points year-on-year to 101.5%, thanks to efficiency improvements across all sectors and better automobile insurance loss ratios. Hyundai Marine & Fire Insurance also improved its combined ratio by 2.5 percentage points to 103.5% in the first half. DB Insurance and Meritz Fire & Marine Insurance recorded combined ratios of 101.5% and 100.7%, down 2.2 and 6.2 percentage points respectively from the previous year.

Life insurers also showed strong performance during this period. Samsung Life Insurance posted a consolidated net profit of 1.1646 trillion KRW in the first half, a 71.6% increase year-on-year. This was due to improved secondary gains and losses from dividends from Samsung Electronics in Q1, increased consolidated profits, and recovery of variable annuity reserves.

Hanwha Life Insurance's net profit on an individual basis for the first half rose 42.7% year-on-year to 250.8 billion KRW. The improvement was attributed to better secondary gains (interest rate spread reversal) due to rising interest rates and stock indices, as well as successful sales strategies focused on protection-type products. Its consolidated net profit surged 208.3% to 501.6 billion KRW. Kyobo Life Insurance's net profit for the first half increased 39.5% year-on-year to 610.4 billion KRW.

However, life insurers' Q2 results were relatively weak. Samsung Life Insurance's Q2 net profit fell 82.9% year-on-year to 76.6 billion KRW. The biggest factor was the provision of 278 billion KRW following a first-instance court loss in an immediate annuity lawsuit. On the 10th, Samsung Life filed an appeal against the first-instance ruling unfavorable to it in a lawsuit filed by 57 immediate annuity subscribers claiming unpaid pension amounts. During the same period, Hanwha Life Insurance posted a net profit of 56.6 billion KRW, down 55.8%. The decline was explained by a reduced reversal of variable annuity reserves in Q2 causing a negative base effect, and increased accident insurance payouts leading to relatively poor Q2 performance.

The outlook for the second half of the year also hinges on COVID-19 and interest rate hikes. Since the decline in loss ratios was a special effect under the COVID-19 situation, the pandemic is expected to remain a variable. The outlook for life insurers is gloomier compared to non-life insurers. Korea Credit Rating forecasted that life insurers' secondary interest margin losses will continue in the second half of this year.