Insurance Companies Face 'Management Crisis' Reality... Net Profit Disappears by 2 Trillion Won

[Asia Economy Reporter Oh Hyung-gil] The total net income of domestic life and non-life insurance companies has evaporated by 2 trillion won in just one year.

Due to prolonged low interest rates, poor performance in the investment sector, and the suspension of savings-type insurance sales following the introduction of a new accounting system, insurance premium income has also decreased, making the management crisis of insurance companies a reality. This year, uncertainty has greatly increased due to the COVID-19 pandemic, heightening concerns.

According to the Insurance Trends (Spring 2020 issue) released by the Korea Insurance Research Institute on the 23rd, last year, the net income of life and non-life insurers recorded 5.3 trillion won, a 27% decrease compared to 7.3 trillion won in the same period the previous year.

Life insurance net profit was 3.1 trillion won, down 22.7% from the previous year.

The institute explained, "Life insurance saw an expansion in insurance operating losses due to an increase in guarantee reserves caused by low interest rates," and "investment operating profit also decreased due to base effects such as the expansion of stock disposal gains in 2018."

Non-life insurance net income also fell sharply by 31.7% from the previous year to 2.2 trillion won. Non-life insurance saw a significant increase in insurance operating losses due to increased business expenses from intensified competition in long-term non-life insurance sales and an increase in automobile insurance loss ratios.

However, investment operating profit showed growth due to increased bond disposal gains from falling interest rates, as well as increased interest income and dividend income.

The institute pointed out that the decrease in net income for life and non-life insurance also led to a simultaneous decline in return on assets (ROA) and return on equity (ROE).

Life insurance ROA was 0.35%, down 0.13 percentage points from the previous year, and non-life insurance ROA also fell 0.41 percentage points to 0.72% compared to the previous year.

Additionally, life insurance ROE was 3.75%, down 1.8 percentage points from the previous year, while non-life insurance ROE was 5.48%, down 3.38 percentage points from the previous year.

The institute also diagnosed, "In the case of life insurance, the interest margin is negative as the insurance liability reserve rate is higher than the operating asset yield, making it vulnerable to a low interest rate environment."

It added, "Non-life insurance is also showing a decreasing trend in net profit as the scale of operating profit surplus shrinks due to rising loss ratios."

Insurance premiums received from customers showed differences between life and non-life insurance.

Life insurance premium income was 117.3 trillion won, up 5.8% from the previous year, but excluding retirement pensions, premium income showed a negative growth trend.

Non-life insurance gross written premiums recorded 95.6 trillion won, up 5.0% from the previous year. Growth was seen in long-term accident and disease insurance, automobile insurance, and retirement pensions.

This content was produced with the assistance of AI translation services.