Despite economic uncertainty and challenges in the auto insurance market, AM Best has reaffirmed a stable outlook for South Korea’s non-life insurance sector. The credit rating agency attributes this positive assessment to insurers’ strong capital management, steady growth in both long-term and general insurance lines, and a clear focus on profitability.
Regulatory Reforms Prompt Capital Strengthening
South Korean insurers are responding to regulatory changes introduced by the Financial Supervisory Service (FSS). These changes include the use of lower discount rates and the possibility of core capital requirements under the new K-Insurance Capital Standard (K-ICS). As a result, insurers are:
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Increasing investments in long-term assets
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Issuing selective forms of capital
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Expanding their use of reinsurance
These steps aim to strengthen capital buffers and meet evolving regulatory standards.
Long-Term Insurance Drives Modest Growth
Long-term insurance, particularly in the health sector, continues to be a key contributor to growth. Insurers are also working to improve contractual service margins under the new IFRS 17 accounting standard. These efforts are helping insurers adapt to the shifting regulatory and economic environment.
General Insurance Remains Stable
The general insurance segment is expected to maintain stability, backed by consistent demand for property and liability insurance. This provides a degree of balance to the sector even as other segments face more intense pressure.
Auto Insurance Faces Headwinds
Motor insurance earnings are under pressure. Growth in premiums has slowed, primarily due to:
Inflation
Rate cuts
This is limiting revenue potential in the auto segment.
Market Shifts Toward Large Digital Insurers
The sector is seeing increasing market consolidation. Large insurers are expanding their reach through digital platforms, giving them a competitive advantage. Meanwhile, smaller insurers are finding it difficult to compete effectively in this evolving landscape.
Investment Income Remains a Key Earnings Driver
Despite operational challenges, insurers are benefiting from investment income, especially from high-yield bonds purchased during the post-pandemic interest rate hikes. This has become a critical component of overall profitability.
Outlook Remains Stable Amid Global Pressures
AM Best expects the sector to remain resilient in the face of:
Slower GDP growth
Geopolitical and trade tensions
The agency points to strong capital reserves and improved risk management practices as key reasons for its continued stable outlook.
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