7 out of 12 Life Insurance Companies "Reduced Executives First"

Sales Slump and Loss Ratio Increase Lead to Successive Workforce Restructuring

[Asia Economy Reporter Oh Hyung-gil] Samsung Life Insurance, the number one life insurance company, significantly reduced the number of executives last year. The number of non-registered executives, which was 63 at the end of 2018, was cut down to 58 in the fourth quarter. With organizational mergers and consolidations expected ahead of this year's personnel changes, the number of executives is anticipated to decrease further.

Insurance companies are starting large-scale downsizing by reducing not only executives but also branches and sales offices, which are the core of sales. Continuous poor sales performance and rising loss ratios have pushed them to the brink, leading to workforce restructuring.

According to the insurance industry on the 6th, among 12 life insurance companies, 7 reduced their executives last year. As of October last year, compared to the end of the previous year, Mirae Asset Life Insurance reduced 2 non-registered executives, while Orange Life decreased 1 registered executive and 3 non-registered executives.

Foreign life insurers such as Dongyang Life Insurance, MetLife Life Insurance, and LINA Life Insurance are also significantly reducing the number of executives, shrinking their presence in the Korean market. Prudential Life Insurance, recently appearing as a sale item in the merger and acquisition (M&A) market, also reduced executives last year.

The situation is not much different for non-life insurers. Hanwha General Insurance reduced its executives from 34 to 28 through year-end personnel changes last year. Lotte General Insurance dismissed 9 out of 18 executives in December, filled only 5 positions, and eliminated the remaining 4.

The number of branches, which serve as the starting point for sales, also decreased. Life insurers' branches dropped by about 260, from 3,318 at the end of 2018 to 3,056 last year. Non-life insurers' branches also decreased by 7, from 2,744 in the same period the previous year to 2,737 as of last September.

Along with sluggish insurance market conditions, continued low interest rates have reduced investment returns. The individual insurance subscription rate, which reached 78.9% and 79.7% in 2015, fell to 72.7% and 76.2% last year, respectively.

The avoidance of insurance subscriptions is directly linked to poor performance. The cumulative net income (January to September) of 24 life insurers last year was 3.0573 trillion KRW, down 24.3% (981.1 billion KRW) compared to the same period the previous year. The cumulative net income of 30 non-life insurers for the third quarter also decreased by 24.6%, totaling only 2.2 trillion KRW.

With the bond market sluggish, the average asset yield of life insurers as of the end of October dropped from 3.9% at the end of 2016 to 3.5% at the end of last year. Meanwhile, major insurance loss ratios, such as for indemnity medical insurance and automobile insurance, continue to soar in this extreme situation.

Kim Dong-gyeom, a research fellow at the Korea Insurance Research Institute, said, "The domestic insurance industry’s profitability has declined due to prolonged low interest rates and strengthened capital regulations, and growth drivers have weakened due to demographic changes and economic downturns. It is necessary to create an environment where insurance companies can survive solely on insurance margins through the deregulation of insurance product pricing."

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