Insurance Companies' First Half Net Profit Increased, but Future Variables Include COVID-19 and Interest Rate Hikes (Comprehensive)

Double-Digit Performance Improvement for Life and Non-Life Insurers in the First Half of This Year
Life Insurers See Increased Sales of Protection Insurance and Improved Investment Gains
Non-Life Insurers Stabilize Auto Insurance Loss Ratios and More

[Asia Economy Reporter Ki Ha-young] Insurance companies achieved significantly improved performance in the first half of this year. Life insurers saw increased sales of protection-type insurance and improved investment gains, while non-life insurers benefited from stabilized loss ratios in auto insurance due to the prolonged COVID-19 pandemic. However, since this is a reflection effect caused by COVID-19, the future performance is expected to be influenced by the course of the pandemic and interest rate hikes.

Non-life Insurers’ Net Profit Soars in First Half... Effect of Declining Loss Ratios in Auto Insurance

According to the industry on the 18th, major insurers posted double-digit growth in the first half of this year. The performance improvement of non-life insurers was particularly notable. Samsung Fire & Marine Insurance recorded a net profit of 744.1 billion KRW in the first half, a 71.7% increase compared to the previous year. Its pre-tax profit on a consolidated basis for the first half reached 1.032 trillion KRW, surpassing last year’s annual profit in just six months.

During the same period, Hyundai Marine & Fire Insurance achieved a net profit of 249 billion KRW, up 35.5% year-on-year, and DB Insurance posted 425.6 billion KRW, a 21.8% increase. KB Insurance and Meritz Fire & Marine Insurance also recorded net profits of 141.1 billion KRW and 291.9 billion KRW, up 20.9% and 36.8% respectively compared to the first half of last year.

This was due to a decline in loss ratios, which indicate insurers’ operational efficiency. With strengthened social distancing measures reducing vehicle movement and hospital visits compared to previous years, loss ratios for auto insurance and others improved. In fact, Samsung Fire & Marine Insurance’s combined ratio (sum of loss ratio and expense ratio) fell by 2.9 percentage points year-on-year to 101.5%, thanks to efficiency improvements across all sectors and better auto insurance loss ratios. Hyundai Marine & Fire Insurance also improved its combined ratio by 2.5 percentage points to 103.5% in the first half compared to the same period last year. DB Insurance and Meritz Fire & Marine Insurance recorded combined ratios of 101.5% and 100.7%, down 2.2 and 6.2 percentage points respectively from the previous year.

Life Insurers Also Show Strong Performance... Increased Sales of Protection-type Insurance

Life insurers also posted strong results during this period. Samsung Life Insurance recorded a consolidated net profit of 1.1646 trillion KRW in the first half, up 71.6% year-on-year. This was due to improved secondary gains and losses from increased dividends from Samsung Electronics in Q1, higher consolidated profits, and recovery of variable annuity reserves.

Hanwha Life Insurance’s net profit on an individual basis for the first half rose 42.7% year-on-year to 250.8 billion KRW. The improvement was attributed to better secondary gains (interest rate spread reversal margin) due to rising interest rates and stock indices, as well as successful sales strategies focused on protection-type products. Its consolidated net profit surged 208.3% to 501.6 billion KRW. Kyobo Life Insurance’s net profit for the first half increased 39.5% year-on-year to 610.4 billion KRW. Dongyang Life Insurance also recorded a net profit of 146.1 billion KRW in the first half, up 71.1% from the previous year.

However, some life insurers showed relatively weak results in the second quarter. Samsung Life’s net profit for Q2 fell 82.9% year-on-year to 76.6 billion KRW. The biggest factor was the provision of 278 billion KRW following a first-instance court loss in an immediate annuity lawsuit. Samsung Life filed an appeal against the first-instance ruling on June 10, which was unfavorable in a lawsuit filed by 57 immediate annuity subscribers claiming unpaid pension amounts. During the same period, Hanwha Life’s net profit dropped 55.8% to 56.6 billion KRW. The decline was explained by a reduced reversal of variable annuity reserves in Q2, causing a base effect, and increased insurance claim payments leading to relatively weak second-quarter results.

Second Half Performance Likely to Depend on COVID-19 and Interest Rates

The outlook for the second half also hinges on COVID-19 and interest rate hikes. Since the decline in loss ratios was a special effect under the unique circumstances of COVID-19, the pandemic is expected to continue to be a variable. For life insurers, whose insurance profits declined as health insurance payments increased due to a rise in medical utilization suppressed last year in Q2, performance is expected to improve as medical utilization decreases again amid the fourth wave of COVID-19. However, Korea Credit Rating anticipates that the negative interest margin for life insurers will persist in the second half, and improvements in insurance profits will be gradual. Future interest rate and stock market conditions are also expected to impact performance.

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