Preliminary Business Results of Insurers in Korea for 2022

In 2022, the Korean insurance market performed more strongly than expected thanks to a surge in retirement annuity premiums. According to preliminary results released by the Financial Supervisory Service in March 2023, the life insurance market gained growth momentum, with premium income rising by 10.1% on the back of savings insurance as well as retirement annuities. Life insurers saw their savings insurance and retirement annuity premiums soar by 39.2% and 15.5% respectively. Non-life premium income jumped by 11.5%, as all lines of non-life business generated solid growth. The top-line increase was fueled particularly by retirement annuities, which swelled by 46.2%. General P&C insurance grew by 10%, while there was an increase of 5% in long-term insurance.

The insurance industry in Korea also reported strong bottom-line results in 2022, with its combined net income surging by 11.1% to KRW 9,180.1 billion. However, sharply divided results were delivered: the life insurance sector suffered a decline in net income, while non-life insurers continued to perform strongly, recording a bottom-line growth of 26.6%. The robust performance of the non-life sector was backed by improvements in both underwriting and investment results. Non-life insurers’ underwriting losses narrowed thanks to a drop in long-term insurance loss ratios amid a relatively benign claim environment and an increase in new long-term business. Life insurers saw their net income decrease by 6% year on year as their investment gains shrank due to a reduction in both gains on disposition of financial assets and mark-to-market gains. Their underwriting performance, however, improved amid a decline in guaranteed reserves following interest rate rises.

The profitability ratios of the insurance industry increased in 2022 compared to the prior year. Its return on assets (ROA) ratio rose by 0.07%p to 0.69%, and its return on equity (ROE) ratio climbed by 2.27%p to 8.22%. Non-life insurers reported higher ratios than life insurers as follows:

As of late December 2022, insurers reported a decrease in assets compared to a year earlier. Their total assets dwindled by 3.6% to KRW 1,310.1 trillion, which is broken down into KRW 938.3 trillion for life insurance and KRW 371.8 trillion for non-life insurance. Life insurers continued to dominate insurance industry assets, accounting for around 72% of the total, but their assets diminished by 5.5%, while non-life assets increased by 1.5%.

The insurance industry saw its total shareholders’ equity dip by 34.0% to KRW 88.9 trillion as of late 2022 because rising interest rates caused insurers to suffer a reduction in unrealized gains on the value of securities they held as investments. The coupon rate on the ten-year Treasury bond shot up to 3.73% at the end of 2022 from 2.25% at the end of 2021.

Rising interest rates can have a mixed impact on insurers. In the long term, they can help insurers improve their profitability by increasing the yields on their investment portfolios. However, in the short term, they can lead to a decrease in the value of insurers' bond portfolios, which can reduce their book value or net worth. When rates go up, the value of their bond portfolios goes down, as existing bonds become less attractive than new bonds that offer relatively higher rates. This can cause a decline in the value of insurers' fixed-income assets, even though it does not affect their net income because it is recognized as unrealized gains or losses. Insurers can benefit from higher interest rates over time, as they will have the opportunity to invest at higher rates and improve their overall profitability.