Insurance Companies' First Half Net Profit Up 50%... Impact of Interest Rate and Stock Price Increase

[Asia Economy Reporter Kwangho Lee] Insurance companies' net income for the first half of this year significantly increased compared to the previous year. This is attributed to rising interest rates and stock prices, as well as a substantial improvement in loss ratios.

According to the '2021 First Half Insurance Company Management Performance' report released by the Financial Supervisory Service on the 29th, the net profit of insurance companies in the first half reached 5.677 trillion KRW, a 49.9% increase from one year earlier.

Life insurance companies posted a net profit of 3.1468 trillion KRW, up 58.1% from 2.0727 trillion KRW in the same period last year. Although insurance operating losses improved due to rising stock prices and interest rates and reduced business expenses, investment operating profits declined due to decreases in interest income and foreign exchange and derivative gains.

During the same period, non-life insurance companies' net profit was 2.5302 trillion KRW, a 47.5% increase from 1.71456 trillion KRW in the previous year. Insurance operating losses improved due to lower loss ratios in automobile and long-term insurance and the base effect of large claims, but investment operating profits decreased.

Insurance companies' insurance operations (earned premiums) in the first half of this year amounted to 105.2 trillion KRW, a 3.2% increase compared to the previous year.

Return on assets (ROA) and return on equity (ROE) rose by 0.26 percentage points and 2.42 percentage points, respectively, to 0.86% and 8.14% compared to one year ago.

Total assets increased by 0.8% compared to the end of last year due to an increase in operating assets from premium income. Conversely, equity capital decreased by 5.3% due to a decline in bond valuation gains caused by rising interest rates, despite realizing net income.

A Financial Supervisory Service official stated, "In a situation of high domestic and international uncertainty such as the resurgence of COVID-19, insurance companies need to establish and implement more long-term and sound management strategies." He added, "We plan to take proactive measures by closely examining asset management, business activities, and risk management that affect profitability and financial soundness for each insurance company."