Insurance Companies Record 5.7 Trillion KRW Net Profit in First Half... Optimism Grows for Second Half

Profit Increase Due to Rising Interest Rates and Stock Prices, Improved Loss Ratio
Base Rate Hike Expected in Second Half... Will Yields Also Rise?

[Asia Economy Reporter Oh Hyung-gil] As insurance companies achieved strong performance in the first half of the year, expectations are rising for the second half as well.

Due to reduced outdoor activities amid the COVID-19 pandemic, loss ratios for non-life insurers, including automobile insurance, declined, while life insurers’ net profits increased thanks to rising stock prices and interest rates.

According to the provisional management performance of insurance companies compiled by the Financial Supervisory Service, the net profit of insurance companies reached 5.677 trillion KRW, an increase of 1.8887 trillion KRW (49.9%) compared to the same period last year.

Life insurers’ net profit was 3.1468 trillion KRW, up 1.0741 trillion KRW (58.1%) from the same period last year. Insurance operating losses improved due to rising stock prices and interest rates and reduced business expenses, but investment operating profits decreased due to lower interest income and foreign exchange and life insurance gains and losses.

Non-life insurers’ net profit was 2.5302 trillion KRW, an increase of 814.6 billion KRW (47.5%) compared to the same period last year. Insurance operating losses improved due to lower loss ratios in automobile and long-term insurance and the base effect of high-cost accidents, but investment operating profits declined.

Premium income was 105.2 trillion KRW, up 3.2 trillion KRW (3.2%) from the same period last year. Life insurers’ premium income was 55.6886 trillion KRW, an increase of 1.5266 trillion KRW (2.8%) compared to the same period last year. Sales increased for variable insurance (10.9%), savings-type insurance (2.8%), and protection-type insurance (2.8%), while retirement pensions decreased (-7.9%).

Non-life insurers’ premium income was 49.5114 trillion KRW, up 1.6979 trillion KRW (3.6%) from the same period last year. Sales increased for general insurance (9.4%), long-term insurance (5.3%), and automobile insurance (5.0%), but retirement pensions decreased (-15.8%).

Profitability and financial condition also improved. 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 the same period last year.

As of the end of June, total assets of insurance companies stood at 1,331.8 trillion KRW, an increase of 10.5 trillion KRW (0.8%) compared to the end of last year. Meanwhile, equity capital was 135.6 trillion KRW, down 7.7 trillion KRW (5.3%) during the same period, attributed to a decrease in bond valuation gains due to rising interest rates.

Assets under management increased by 10.5 trillion KRW (0.8%) compared to the end of December last year due to increased premium income. However, equity capital (135.6 trillion KRW) decreased by 7.7 trillion KRW (-5.3%) despite realizing net profits, due to reduced bond valuation gains caused by rising interest rates.

Following last year’s strong performance, it is pointed out that this should be used as an opportunity to establish long-term management strategies. In particular, the recent base interest rate hikes could act as a positive factor for insurers by increasing yields on new bond investments.

A financial regulatory official said, "With heightened internal and external uncertainties such as the resurgence of COVID-19, insurance companies need to implement more long-term management strategies," adding, "We will closely examine asset management, sales activities, and risk management, and take proactive measures such as requesting improvement plans for vulnerabilities."