Will the IFRS17 Bubble Burst... Non-life Insurers' 3Q Net Profit Declines This Time

KB Insurance Net Profit Plummets 43% QoQ
Samsung Fire & Marine, Hyundai Marine & DB Insurance Also Expected to Decline
Financial Supervisory Service Guidelines Remove Earnings Bubble
"Uncertainty Resolved... Profit Volatility Expected to Decrease"

The performance of non-life insurance companies, which had been thriving with record-breaking net profits until the first half of the year, is expected to slow down starting from the third quarter of this year. This is because the guidelines issued by the authorities to prevent performance inflation under the new accounting standards are being applied from the third quarter, causing the bubble to dissipate.

According to the industry on the 10th, the third-quarter earnings announcements of major non-life insurers will take place starting next week. Samsung Fire & Marine Insurance and DB Insurance are scheduled to release their third-quarter results on the 13th, followed by Hyundai Marine & Fire Insurance on the 14th.

The atmosphere is expected to be quite different from the first half of the year. The Financial Supervisory Service (FSS) judged that non-life insurers inflated their earnings by loosely assuming loss ratios for indemnity health insurance and lapse rates for no-surrender and low-surrender insurance when adopting the new accounting standard IFRS17, and thus created stricter application guidelines to be reflected from the third-quarter results. According to the FSS, non-life insurers recorded a net profit of 5.3281 trillion won in the first half of this year alone, a record-breaking performance that increased by 55.6% compared to the same period last year.

The market also expects the net profits of non-life insurers to decline quarter-on-quarter. According to financial information analysis firm FnGuide, the market consensus for Samsung Fire & Marine Insurance’s net profit in the third quarter of this year is 551.9 billion won, a 15.1% decrease from the previous quarter. During the same period, Hyundai Marine & Fire Insurance is estimated to record a net profit of 224.5 billion won, down 8.1%. DB Insurance, which had been consecutively breaking quarterly earnings records since last year, is expected to see a 26.3% decrease in net profit to 352 billion won in the third quarter of this year. KB Insurance, which has already announced its results, reported a third-quarter net profit of 155.1 billion won, a sharp drop of 116.3 billion won (-42.9%) from 271.4 billion won in the previous quarter.

Although the bond market remains unstable, causing a decrease in investment segment net profits, the overall insurance business conditions have not changed significantly. Even automobile insurance, which had long been considered a 'pain point' due to perennial losses, has steadily maintained profitability since the COVID-19 pandemic. Ultimately, the strict guidelines from the FSS have led to the removal of the previous 'performance bubble.'

While the immediate results may appear sluggish, there is a forecast that the overall industry’s performance uncertainty will be resolved in the long term. Seungkwon Kim, a researcher at KB Securities, explained, "In the first half of the year, there was a lot of uncertainty due to controversies over retrospective versus prospective application methods and differences in actuarial assumptions following the introduction of IFRS17. With this earnings adjustment, much of the uncertainty in the financial statements has been resolved, which will reduce future earnings volatility. Meanwhile, the Contractual Service Margin (CSM) will grow, enabling performance improvements next year."

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