Korean Re News
Korean Re’s Business Results for 2020 and the First Quarter of 2021
Business Results for 2020
Korean Re continued to grow its top line despite challenging market conditions in 2020. We recorded a 4.1% growth in premium income, which totaled KRW 8,377.1 billion, backed by our strong position in the domestic market and rate hardening across overseas markets.
Following a robust growth of 7.5% in 2019, our overseas business grew by 8.6% in 2020, with gross written premiums reaching KRW 2,174.6 billion. This higher growth was driven by market hardening effects and our effort to expand into non-property lines of business such as casualty, motor and life.
The growth rate of our domestic business decreased to 2.7% in 2020 from 6.1% in the previous year. Personal lines of business grew by 1.6% in 2020. The slower growth of personal lines of business was the result of our profit-oriented underwriting strategy under which we remained highly selective in underwriting risky insurance products and non-renewed underperforming businesses.
The growth of our domestic commercial business slightly slowed to 4.4% in 2020 from 6.0% in 2019, but the traditional commercial portfolio excluding crop and guarantee insurance showed a strong growth rate of 12.2% thanks to the recent upward movement of reinsurance pricing.
In line with the rise in gross written premiums, our net written premiums expanded by 6.1% to KRW 5,863.0 billion in 2020. The overall retention rate increased slightly from 68.7% in 2019 to 70.0% in 2020 mainly due to our strategy to increase retention of profitable reinsurance contracts.
The underwriting results of Korean Re slightly weakened in 2020 due to large losses in domestic commercial lines and the COVID-19 impact on our overseas business. As a result, our combined ratio increased by 0.3%p to 100.3% for the year. Even though COVID-19 led to considerable losses on our overseas business, which amounted to KRW 48.2 billion, the combined ratio of our overseas business decreased from 99.7% in 2019 to 98.7% in 2020 thanks to a large decline in natural catastrophe losses and rate increases. Tightened underwriting guidelines for marine and engineering lines and the expansion of casualty, motor, and life lines also contributed to the improvement of profitability in overseas business.
The combined ratio of domestic commercial lines surged to 99.7% for the year, up 6.5%p from the prior year due to increases in the frequency of large loss events and typhoon losses. The combined ratio of domestic personal lines improved to 101.2% in 2020 because of a stabilized loss ratio and rate increases. We expect that the profit-oriented growth strategy will be maintained and our efforts to reduce participation in underperforming treaties will help improve our combined ratio for 2021.
Our investment operations delivered strong results in 2020 due to an increase in profit from sale of bonds by KRW 43.9 billion and a sound investment yield on loans. We recorded KRW 236.7 billion in net investment income, with an investment yield of 3.8% in spite of some impairment losses including KRW 9.0 billion for KDB Life equity invested in 2009.
This solid investment yield came amid a persistently low yield investment climate. Since 2016, we have focused on rebalancing our investment portfolio to maintain an asset mix that best reflects our risk and return profile. To this end, we have consistently reduced our redundant holdings of short term funds and allocated more assets to senior loans and alternative investment vehicles that can generate long-term stable investment income. We expect that asset allocation will be continuously monitored and optimized flexibly considering changes in economic environment and our risk appetite.
Business Results for the First Quarter of 2021
Korean Re delivered strong business results for the first quarter of 2021 with net income surging by 25.6% to KRW 56.5 billion. A combination of factors contributed to our bottom-line results, including stable investment performance and improved underwriting results driven by a decrease in the severity of large-loss events and a favorable pricing environment. We turned a profit with underwriting income of KRW 12.4 billion despite the recognition of additional COVID-19 losses on our overseas business. The combined ratio improved to 98.6% compared to 99.8% a year earlier. Investment income amounted to KRW 52.2 billion on the back of profit on loans and alternative investments, generating an investment yield of 3.3%.
However, we suffered a setback in premium growth. Our gross written premiums declined by 0.9% to KRW 1,975.7 billion in the first quarter of 2021 due to a sharp reduction in overseas business. The contraction reflected non-renewal of unprofitable accounts in some territories and the high base in the same period of the previous year due to large-volume processing of statements of accounts from overseas life business. However, ongoing market hardening is expected to help boost the top-line of our overseas business later this year.
We saw our domestic business grow by 1.7% in the first three months of the year compared to the same period of the prior year. Commercial lines of business showed some contraction in premium growth mostly due to the base effect from one-off premium growth involving satellite launch insurance in 2020. Personal lines of business recovered to a 4.1% growth backed by long-term and motor businesses, but we continued to stay focused on portfolio management to improve the profitability of personal lines.
Korean Re’s Internal Model Development Project
Korean Re has been working to develop internal models that can provide a more accurate and sophisticated picture of its insurance risk profile. This development project is part of its efforts to deal preemptively with requirements under IFRS 17 and the Korean Insurance Capital Standards called K-ICS, both of which are scheduled to take effect in 2023.
K-ICS is based on the European Solvency II valuation system, and the parallel implementation of K-ICS and IFRS 17 is expected to increase capital requirements for insurers as they will be required to apply the fair value approach in measuring their insurance liabilities. Under the new solvency regime where a principle-based approach is taken, insurers are encouraged to establish and use internal models along with the standard model as internal models allow a better assessment of the risks of individual companies, taking into account the nature and characteristics of their businesses. While the standard model applies pre-defined shock scenarios, the internal model uses risk multipliers based on a company-specific risk profile. Insurers will be allowed to substitute internal models for the standard model subject to supervisory approval.
The use of internal models is expected to help insurers precisely measure the risks they are exposed to. When internal models are fully embedded in the management processes, they will enable insurance companies to carry out important tasks more effectively such as risk capital assessment, business performance monitoring, and strategic asset allocation. Recognizing these benefits of using internal models, Korean Re plans to build robust internal models by the end of January 2022.
Korean Re Insurance Webinar for the First Half of 2021
On May 21, Korean Re held its first insurance webinar for 2021 to promote discussion about latest market issues and trends including the rise of artificial intelligence (AI) and catastrophe modeling. Over 280 persons from the local insurance industry attended the webinar, which was designed to help participants improve their understanding of key topics for the insurance market and provide insights into important market developments.
The webinar consisted of three sessions where each speaker gave an informative presentation on a different topic. The first session was about the business of personal data management so called MyData and its implications for the financial services industry. A prominent professor from Kyung Hee University gave a lecture on the concept of MyData and five different business models involving My Data. He also discussed the importance of getting the hang of the MyData business for financial companies. As personal data has increasingly significant value from social, economic, and practical perspectives, the MyData business has been attracting a great deal of interest across industries, making the session on this topic all the more meaningful.
For the second session, a distinguished professor from Seoul National University gave a presentation on the artificial intelligence industry in the context of the Digital New Deal, one of the two major pillars of the Korean New Deal that the Korean government announced to spur economic growth and innovation. The Digital New Deal aims to transition Korea to a digital economy that centers on technologies such as AI and big data. He shed light on what social and economic changes are being brought about by the development of AI and what the future of AI will look like, while discussing the need for companies to build competitiveness in AI-based business capabilities.
The third session was about catastrophe (CAT) modeling, a follow-up to last year’s webinar session. A deputy general manager from the Risk Management Team of Korean Re delivered a presentation on the topic of Cat Modeling: Cyber Risk, Pandemic, and Non-Modeled Perils. Cyber risk and pandemics are recognized among the most alarming risks by businesses, and the modeling of such risks has become an important topic for those who want and need to reinforce their risk management. The speaker addressed how cyber risk and pandemic models work and elaborated on types of non-modeled risk, stressing the importance of understanding and managing non-modeled catastrophe risks.