Still Confused About IFRS17... Life Insurers' Earnings 'Rapid Growth'?

Hanwha Life Surpasses Kyobo to Rise to 2nd Place
Enters CSM 10 Trillion Club
Accounting Illusion Effects Persist
Double-Digit Growth Despite Challenging Market
"Comparison Should Be Made After System Stabilization"

With the introduction of the new accounting standards, the rankings of the 'Big 3' life insurance companies have shifted. Hanwha Life, which was third in the first quarter of this year, surpassed Kyobo Life in both net profit and Contractual Service Margin (CSM), rising to second place. However, some view it as premature to consider this an accurate comparison since the new accounting standards have not yet fully settled.

According to industry sources on the 16th, Hanwha Life recorded a net profit of 703.7 billion KRW in the first half of this year, a 68.6% increase compared to the same period last year. Kyobo Life posted a net profit of 671.6 billion KRW, up 34% year-on-year. Hanwha Life surpassed Kyobo Life by over 30 billion KRW, securing the second position among life insurers based on first-half net profit. This contrasts with the first quarter, when Kyobo Life's net profit was nearly 100 billion KRW higher than Hanwha Life's.

Hanwha Life also showed strength based on the Contractual Service Margin (CSM), a profitability indicator introduced under the new IFRS 17 accounting standard. CSM is a concept that evaluates the future profits expected from insurance contracts. It is initially recognized as a liability at the contract inception and amortized as profit over the duration of the contract.

As of the end of the first half, Hanwha Life's CSM stood at 10.1167 trillion KRW, making it the second company in the life insurance industry to join the '10 trillion club' after Samsung Life (11.9128 trillion KRW). Kyobo Life recorded a CSM of 5.284 trillion KRW, nearly 1.8 trillion KRW less than Shinhan Life (7.0413 trillion KRW). The increase in CSM was in the order of Samsung Life (677.8 billion KRW), Hanwha Life (404.2 billion KRW), Kyobo Life (233.3 billion KRW), and Shinhan Life (13.6 billion KRW).

The increase of several hundred billion KRW in CSM is attributed to life insurers aggressively expanding sales of short-term single premium whole life insurance policies with terms of 5, 7, and 11 years. Additionally, the surge in initial premiums for death insurance, which is more favorable for securing CSM compared to savings or pension insurance, also contributed.

However, there are views that it is still difficult to accept the life insurers' performance growth and ranking changes at face value. The new accounting standards allow insurers some discretion in future assumptions regarding lapse rates and loss ratios, which could create an 'optical illusion' effect. In fact, although life insurers showed double-digit growth in net profit year-on-year, unlike non-life insurers, the life insurance market remains challenging. Im Hee-yeon, senior researcher at Shinhan Investment Corp., pointed out, "Since the CSM guidelines proposed by financial authorities have not been reflected, there are limitations in analyzing fundamentals and corporate value."

The controversial application of the Financial Supervisory Service's IFRS 17 guidelines will also continue to cause confusion for the time being, as from next year only the prospective method (application from the current period) will be allowed instead of the retrospective method. An industry insider said, "Honestly, given the unclear and difficult environment in the life insurance industry, it is hard to accept the good performance as is," adding, "Once the new accounting standards settle after next year, proper performance comparisons will be possible."

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