"Performance Celebration" Is an Optical Illusion... Life Insurance Companies Worried About the Second Half of the Year

Significant Net Profit Growth Solely from Accounting Standard Changes
Challenging Business Conditions Remain... Immediate Concerns for the Second Half
"It Would Be Great If We Could Truly Hold a 'Performance Celebration'"

This year, insurance companies have been criticized for throwing a 'money party' by earning net profits comparable to the five major commercial banks in the first half of the year. However, this is seen as merely an optical illusion caused by changes in accounting standards. In particular, life insurance companies are currently worried about their second-half performance as some popular products have even been discontinued amid a still challenging business environment.

According to the industry on the 21st, insurance companies recorded a record-breaking consolidated net profit of about 8 trillion won in the first half of this year. Non-life insurers earned around 4.6 trillion won, while life insurers earned about 3.4 trillion won. This level is comparable to the combined net profit of 8.0969 trillion won posted by the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?in the first half of this year.

However, this is interpreted as an optical illusion caused by the introduction of the new accounting standard IFRS17. This effect is particularly pronounced for life insurers. For example, Hanwha Life reported a consolidated net profit of 703.9 billion won in the first half of this year. Compared to the 417.4 billion won net profit in the first half of last year under the old accounting standards, this represents a solid 68.6% increase. But when the new accounting standard is retrospectively applied to last year’s results, the situation changes. Last year’s first-half net profit swells to 1.164 trillion won, turning this year’s first-half net profit into a disappointing performance with a 39.6% decrease compared to the same period last year.

The growth trend changes similarly for other major life insurers. Samsung Life, the industry leader, posted a consolidated net profit of 1.0389 trillion won in the first half of this year, a 107.3% increase compared to last year’s results. However, when IFRS17 is retrospectively applied, the net profit growth rate shrinks to 47.0%. Kyobo Life shows a similar pattern. Its consolidated net profit in the first half of this year was 671.6 billion won, exceeding last year’s total net profit of 501.2 billion won by more than 30% under the old accounting standards. When the new accounting standard is retrospectively applied, the year-on-year net profit growth rate for the first half shrinks from 109.7% to 16.3%.

The combined net profit of the 'Big 3' life insurers?Samsung Life, Hanwha Life, and Kyobo Life?in the first half of this year was 2.4144 trillion won, about 10.7% higher than the total net profit of 2.1807 trillion won posted by all life insurers in the first half of last year without applying the new accounting standard. Despite no significant changes in the industry environment, the performance appears to have increased dramatically.

Because of this, life insurers are more worried about their performance in the second half rather than celebrating the apparent good results. Once the new accounting standard is fully established and proper comparisons become possible, the previous sluggishness may be fully revealed. In particular, the sales of 'short-term payment whole life insurance,' which significantly contributed to the first-half performance, have been halted from the second half onward. Short-term payment whole life insurance is a product that shortens the payment period from up to 30 years in traditional whole life insurance to 5 to 7 years. It was favored by life insurers because it benefits from the expansion of the Contractual Service Margin (CSM), a profitability indicator introduced by IFRS17, and insurers competed to set the refund rate above 100% upon full payment.

However, starting next month, the Financial Supervisory Service will limit the refund rate to 100% or less and prohibit the payment of long-term maintenance bonuses. This effectively ends the current popularity of these products. Life insurers are in a situation where they need to find new revenue sources, but interest in insurance is not what it used to be. With declining birth and marriage rates, securing future customers is also challenging. A representative from a life insurer said, "If we had truly thrown a 'money party' with performance growth, we would feel at ease. In reality, from management to frontline employees, there is a strong atmosphere of burden regarding future performance growth," expressing disappointment.

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