The main impact of the coronavirus outbreak in 1Q2020 on South Korean insurers probably came from heightened financial market uncertainty rather than the resultant business disruptions – suggested financial results announced by the top 10 local life and non-life insurers.
According to an article from credit rating firm Moody’s Investors Service, the 10 life insurers’ aggregate earnings declined by 31% in the quarter from a year ago which reflected an increase in variable guarantee reserves amid heightened financial market fluctuations.
Major life insurers had set aside higher reserves from adverse market developments triggered by COVID-19 as a result of providing minimum guarantee options on legacy variable guarantee products. Nonetheless, these are subject to reversals as markets recover.
Moody’s noted that major life insurers suffered most from financial market fluctuations with Samsung Life Insurance and Kyobo Life Insurance reporting a net income drop of 45% and 64%, respectively, on a consolidated basis from a year ago.
However, despite the COVID-19 outbreak, life insurers in South Korea did not see premium growth getting affected in 1Q2020.
The top 10 life insurers reported premium income growth of 4% from a year ago in the 1Q2020 while the top three life insurers reported premium growth of 4-7% with continued sales of protection-type products. Notably, Hanwha Life reported a first-year premium growth of 41% in the quarter from a year ago. This is said to reflect recurring premiums accounting for a significant 70-90% of the major life insurers’ total premiums.
Given that social-distancing measures were only introduced late in the quarter on 22 March, its impact on new policy sales is said to not been fully reflected. Furthermore, a scheduled premium increase in April-May could have brought forward some policy sales which pushed up first quarter sales performance.
Considering such factors, Moody’s said it believed that life insurers’ premium growth will moderate in coming quarters when the full impact of social distancing and premium hikes on new policy sales surface.
Compared to the performance of life insurers, the top 10 non-life insurers fared better. The latter reported a 17% increase in net income mainly as a result of the slowdown in travel and business activities which led to lower claims in the auto and long-term medical/health insurance businesses.
This is despite a 29% decline in earnings of market leader Samsung Fire & Marine Insurance which incurred a large one-off loss from a fire event in March.
Another driver of higher profitability was an increase in auto premium rate by 3-3.5% in the first quarter of 2020 and scheduled increase in medical indemnity products in 2020. The improvement in underwriting results is in line with Moody’s earlier expectations for the industry.
With non-life insurers planning to finalise an auto premium hike before June on policyholders with more than one vehicle, underwriting performance will said to be supported when the upcoming hike is added to a recent premium hike.