Top 5 Non-Life Insurers' Quarterly Net Profit Surpasses 2 Trillion Won for the First Time
Samsung Life and Kyobo Life Also See Sharp Increase in Net Profit Compared to Previous Quarter
Performance Diverges Despite Stable Industry Conditions
Results Fluctuate Due to IFRS17 Implementation
The first report card has been released since the introduction of the new accounting standard IFRS17. Depending on how accounting assumptions are made, there are cases where performance significantly improves or stagnates regardless of industry conditions. There are calls for establishing standardized assumptions to enhance the reliability and comparability of the indicators.
According to the insurance industry on the 16th, the combined net profit of the five major domestic non-life insurers?Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, Meritz Fire & Marine Insurance, and KB Insurance?for the first quarter of this year was recorded at 2.0108 trillion KRW. For the first time ever, the net profit of the top five non-life insurers exceeded 2 trillion KRW. Samsung Fire & Marine Insurance, the number one non-life insurer, posted a net profit of 612.7 billion KRW, up 16.7% from the same period last year. Meritz Fire & Marine Insurance (24.5%) and KB Insurance (25.7%) also recorded double-digit growth rates. On the other hand, DB Insurance, which posted record-breaking results last year, and Hyundai Marine & Fire Insurance saw their net profits decrease by 16.0% and 3.5%, respectively, compared to the same period last year.
Life insurers’ performances also showed mixed results. According to the quarterly report announced by Samsung Life Insurance the day before, its net profit for the first quarter of this year was 739.1 billion KRW, an increase of 145.7% compared to the same period last year. Kyobo Life Insurance, which announced its results on the same day, recorded a net profit of 514.2 billion KRW for the first quarter, also a sharp increase of 59.4% year-on-year. In contrast, Hanwha Life Insurance posted a net profit of 422.5 billion KRW for the first quarter, down 11.8% from the same period last year. If market interest rates do not fluctuate sharply as they did last year, the life insurers’ profits, which usually do not fluctuate much, have experienced significant volatility.
This is analyzed as a side effect occurring during the introduction of the new accounting standard. Before the adoption of IFRS17, the dominant expectation was that the performance of non-life insurers, which mainly offer protection-type insurance, would improve more than that of life insurers. However, the net profits of the top two life insurers rose more sharply. With market interest rates stabilizing compared to last year and the insurance industry conditions remaining largely unchanged, the change in accounting standards has created a kind of 'optical illusion.'
In fact, if the net profits of DB Insurance and Hyundai Marine & Fire Insurance, which decreased, are calculated under the previous accounting standard (IFRS4), the net profit growth rates would be 145% and 116%, respectively. In the case of Hanwha Life Insurance, net profit would have grown more than 700% this year compared to the first quarter of last year under the old accounting standard.
This is because the new accounting standard grants more autonomy, expanding the scope of 'assumptions.' The insurance contract service margin (CSM), a newly introduced profitability indicator, is a representative example. It is a concept that recognizes future profits generated from insurance contracts annually in installments, and the figures can vary depending on the insurer’s assumptions. Different assumptions about future lapse rates for non-cancellable insurance and loss ratios for indemnity health insurance among insurers make it difficult to compare not only with other companies but also with the same company’s past performance. The recognition of initial acquisition costs in installments, amid intensified competition for new insurance contracts, has also lowered the reliability of insurers’ performance.
Researcher Taejun Jung of Yuanta Securities said, "If sales competition intensifies, as seen in past indemnity insurance cases, actual costs can significantly exceed expected costs, causing the gap between expected and actual values to widen over time, eventually turning into loss contracts and increasing cost burdens. This means that performance figures after IFRS17 should be trusted and compared only after sufficient time and adjustments."
For this reason, financial authorities have recognized the issue and quickly taken action. The Financial Supervisory Service recently convened a meeting with the chief financial officers (CFOs) of each insurer and announced that it would present detailed standards for accounting assumptions within this month.
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