Financial Research Institute "Improved Operating Conditions Expected for Insurance Industry Next Year... Financial Soundness is Important"

[Asia Economy Reporter Oh Hyung-gil] Next year, the insurance industry is expected to place greater importance on managing profitability and financial soundness in response to the introduction of the new International Financial Reporting Standards (IFRS17) and the Solvency II system (K-ICS).

The microfinance sector and credit finance industry are also expected to experience limited growth, with only modest improvements in profitability anticipated.

On the 8th, Lim Hyung-seok, head of the Financial Consumer Research Division at the Korea Institute of Finance, stated at the '2021 Financial Trends and 2022 Outlook Seminar' held at the Bankers Hall International Conference Room that "In 2022, the insurance industry is expected to see overall improvement in business conditions due to economic normalization and a shift toward rising interest rates."

Opportunities for the insurance industry include ▲expansion of new business areas ▲domestic demand recovery and increased capacity for insurance subscription and retention following the easing of COVID-19 ▲alleviation of burdens such as guarantee reserves and improvement in investment and business income due to the shift toward rising interest rates ▲enhancement of insurers' sustainable competitiveness through the expansion of ESG (Environmental, Social, and Governance) management.

On the other hand, risk factors include ▲concerns over profitability deterioration and worsening investment and business conditions due to increased volatility in domestic and international macroeconomic and financial environments ▲decrease in bond valuation gains and decline in solvency ratios caused by rising interest rates ▲expansion of big tech companies' entry into financial businesses, increasing their influence and presence in the insurance industry ▲increased cost burdens corresponding to strengthened consumer protection and emphasis on ESG management.

Lim predicted, "The life insurance industry will experience stagnation in growth and profitability due to a mix of positive factors such as domestic demand recovery following COVID-19 easing and the shift toward rising interest rates, and negative factors including increased volatility and instability in domestic and international financial markets and a decrease in COVID-19 related windfall gains."

He added, "The non-life insurance industry will see slight improvement in growth driven by economic normalization following COVID-19 easing and growth in general non-life insurance, but profitability is expected to stagnate as the loss ratio improvement effects in automobile insurance and disease/health insurance sectors decrease due to COVID-19."

The microfinance sector is forecasted to have limited growth compared to this year due to strengthened household loan regulations and intensified competition both within and outside the industry, despite gradual economic normalization, with only modest improvements in soundness and profitability.

Regarding the specialized credit finance industry, he analyzed, "There are growth opportunities such as the full-scale launch of data businesses, relaxation of leverage limits, and expansion of ESG management, but uncertainties remain due to changes in the digital regulatory environment. It faces risks including increased funding costs due to rising interest rates, potential deterioration of vulnerable borrowers, and profitability constraints caused by strengthened household loan management and intensified competition within core business areas."

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