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Major life insurers face perfect storm


Net profits for Hanhwa, NH more than halved in H1

By Kim Bo-eun

Circumstances have become increasingly tough for life insurers due to a number of unfavorable factors amid declining earnings.

Interest rates are expected to continue to go down amid economic downturn. They also have to strengthen their capital base ahead of the introduction of the new global accounting standard, the International Financial Reporting Standard (IFRS) 17.

Major local life insurers including Hanwha Life and Nonghyup Life saw their net profits for the first half of 2019 fall by more than 50 percent from the same period a year earlier.

Hanwha's net profit came down to 93.4 billion won, a 61.8 percent plunge from the same period last year.

Nonghyp's net profit totaled 12.1 billion won, a 75.8 percent dive from the first half of 2018.

"This was due to costs of foreign currency hedging based on Korea and the U.S.' interest rate reversal, a fall in profit of investments and also falling premium income as the portion of protective-type insurance increases," a Nonghyup Life official said.

Insurers have largely decreased the portion of savings-type policies while increasing that of protective-type policies ahead of the introduction of the IFRS 17, which is scheduled to go into effect from 2022.

This is because under the new standards, savings insurance contracts will be counted as liabilities since insurers are required to pay back a stipulated amount when contracts expire.

A Hanwha Life official also said "Profits have fallen from investments amid low interest rates."

Samsung Life, the largest life insurer by assets and net profit, saw its net profit for the first half of the year come down to 755.6 billion won, a 47.7 percent fall from the figure of the same period last year.

Orange Life also saw its net profit for the first half of this year fall 19.95 percent from the same period last year to 142.7 billion won.

Mid-sized life insurers such as Tongyang and Shinhan did better, seeing growth in year-on-year net profit.

Tongyang's net profit for the first half of the year grew 31.6 percent year-on-year to 71.1 billion won.

Shinhan's net profit came down to 78 billion won, an 11.4 percent growth from the same period a year earlier.

However, preparations for the IFRS 17 and the low interest rate are common factors life insurers face.

According to a report on premium income in 2019 published by the Korea Insurance Research Institute earlier this month, the premium income collected by insurers is expected to total 200.49 trillion won, down 0.7 percent from 201.90 trillion won a year earlier.

Life insurers' premium income is expected to fall by 3.4 percent to 107.91 trillion won during the same period.

Meanwhile, circumstances are expected to worsen as the Bank of Korea is highly likely to cut the key rate further this year. This will further affect the profits of insurers' investments which have become an increasingly important source of earnings for the companies, as the local insurance market reaches saturation.

"Life insurers lack competitiveness compared to non-life insurers and they have to strengthen their capital base ahead of the introduction of the IFRS 17," Daeshin Securities analyst Park Hye-jin said.



Net profits for Hanhwa, NH more than halved in H1

By Kim Bo-eun

Circumstances have become increasingly tough for life insurers due to a number of unfavorable factors amid declining earnings.

Interest rates are expected to continue to go down amid economic downturn. They also have to strengthen their capital base ahead of the introduction of the new global accounting standard, the International Financial Reporting Standard (IFRS) 17.

Major local life insurers including Hanwha Life and Nonghyup Life saw their net profits for the first half of 2019 fall by more than 50 percent from the same period a year earlier.

Hanwha's net profit came down to 93.4 billion won, a 61.8 percent plunge from the same period last year.

Nonghyp's net profit totaled 12.1 billion won, a 75.8 percent dive from the first half of 2018.

"This was due to costs of foreign currency hedging based on Korea and the U.S.' interest rate reversal, a fall in profit of investments and also falling premium income as the portion of protective-type insurance increases," a Nonghyup Life official said.

Insurers have largely decreased the portion of savings-type policies while increasing that of protective-type policies ahead of the introduction of the IFRS 17, which is scheduled to go into effect from 2022.

This is because under the new standards, savings insurance contracts will be counted as liabilities since insurers are required to pay back a stipulated amount when contracts expire.

A Hanwha Life official also said "Profits have fallen from investments amid low interest rates."

Samsung Life, the largest life insurer by assets and net profit, saw its net profit for the first half of the year come down to 755.6 billion won, a 47.7 percent fall from the figure of the same period last year.

Orange Life also saw its net profit for the first half of this year fall 19.95 percent from the same period last year to 142.7 billion won.

Mid-sized life insurers such as Tongyang and Shinhan did better, seeing growth in year-on-year net profit.

Tongyang's net profit for the first half of the year grew 31.6 percent year-on-year to 71.1 billion won.

Shinhan's net profit came down to 78 billion won, an 11.4 percent growth from the same period a year earlier.

However, preparations for the IFRS 17 and the low interest rate are common factors life insurers face.

According to a report on premium income in 2019 published by the Korea Insurance Research Institute earlier this month, the premium income collected by insurers is expected to total 200.49 trillion won, down 0.7 percent from 201.90 trillion won a year earlier.

Life insurers' premium income is expected to fall by 3.4 percent to 107.91 trillion won during the same period.

Meanwhile, circumstances are expected to worsen as the Bank of Korea is highly likely to cut the key rate further this year. This will further affect the profits of insurers' investments which have become an increasingly important source of earnings for the companies, as the local insurance market reaches saturation.

"Life insurers lack competitiveness compared to non-life insurers and they have to strengthen their capital base ahead of the introduction of the IFRS 17," Daeshin Securities analyst Park Hye-jin said.


Kim Bo-eun bkim@koreatimes.co.kr


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