War and Climate Anomalies... Reinsurers in Distress

[Asia Economy Reporter Changhwan Lee] This year, frequent natural disasters and the war in Ukraine have led to poor performance among domestic and international reinsurers. As the war prolongs and natural disasters caused by abnormal weather increase, it is expected that reinsurers may face difficulties for some time.

According to the insurance industry on the 31st, Korean Re, the largest reinsurer in Korea, posted an operating profit of 80.7 billion KRW in the first half of the year, a 44% decrease compared to 143.7 billion KRW in the same period last year. This is the first time in 10 years since 2012 that Korean Re's first-half operating profit has fallen below 100 billion KRW.

The global increase in natural disasters significantly impacted insurance profits, turning them into losses. Korean Re's overseas property and casualty underwriting loss reached 133 billion KRW in the first half. Overseas underwriting refers to Korean Re assuming the liability of foreign insurers.

Reinsurers typically enter into contracts with overseas reinsurers to share the liabilities they have assumed from insurers in order to diversify risk. This is a form of retrocession. The fact that overseas underwriting is in the red means that Korean Re incurred losses from liabilities assumed overseas.

Korean Re explained that the increase in natural disasters in Europe and the United States, along with the ongoing COVID-19 pandemic, caused overseas underwriting to turn into a loss. Seol Yongjin, a researcher at NH Investment & Securities, analyzed, "Korean Re's overseas underwriting combined ratio turned negative due to the overlap of COVID-19 and natural disasters. Investment operating profit also decreased, resulting in overall poor performance."

Poor performance is not limited to Korean Re but is a general trend across the global reinsurance industry. Munich Re, the world's largest reinsurer, saw its net profit in the second quarter drop by about 30% year-on-year to approximately 1 trillion KRW. Swiss Re, the second-largest reinsurer, recorded a net loss of 330 billion KRW in the first quarter of this year.

They suffered significant losses not only from COVID-19 but also from the war between Ukraine and Russia. As COVID-19 prolongs, reinsurers face great difficulties compensating for damages occurring in various sectors such as business, travel, and trade.

The Ukraine war has dealt a severe blow to global trade, worsening reinsurers' profits. In the case of Swiss Re, it set aside 380 billion KRW in reserves in the first quarter alone due to the Ukraine war, increasing its losses.

With natural disasters continuing in the second half of the year, reinsurers' difficulties are expected to persist. Korean Re is forecasted to incur losses due to heavy rains that occurred earlier this month, and upcoming typhoons are also a concern. An insurance industry official said, "Due to the prolonged Ukraine war and the increase in global natural disasters caused by abnormal weather, reinsurers may continue to face difficulties in the second half of the year."

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