By Nam Hyun-woo
China's retaliation over Korea's decision to deploy a U.S. Terminal High Altitude Area Defense (THAAD) battery here will likely harm non-life insurers, a research institute report said Monday.
According to the Korea Insurance Research Institute (KIRI), domestic insurers' Chinese business may suffer indirect damage if China's pressure on Korean companies operating there spills over to manufacturers.
"Currently, Beijing economic pressure on Seoul is concentrated on specific industries, such as culture content and tourism which are experiencing relatively small damage," a KIRI report said.
"If manufacturers are affected by such measures, things would be different. Our insurers, which advanced into the Chinese market along with them, may face substantial losses."
The report estimated that the damage would be mostly incurred by non-life insurers -- a majority of domestic life insurers have a shield in China because they run joint ventures with Chinese players. For example, Samsung Life advanced into China in 2005 as Samsung Air China Life Insurance.
However, non-life insurers do not have such advantages because they tapped into the world's most populous country on their own to mostly cover risks of Korean manufacturers there, according to the report.
"The so-called big three non-life insurers conduct business in China as independent local enterprises," the report said, adding most of their clients there are Korean brick-and-mortar companies. The big three non-life insurance companies are Samsung Fire, Hyundai Marine and Dongbu Fire.
Japanese corporations suffered big problems in their trade with China as the tension between the two countries rose amid the territorial dispute over the Senkaku Islands or Diaoyu Islands as China calls them in the East China Sea in 2010. From April to September 2012, Japan's exports to China contracted 8.2 percent year-on-year. KIRI assumed that 14,394 Japanese companies in China in 2012 suffered damages worth around 10 billion yen ($88.85 million).
The report warned that Korean companies may suffer a similar amount of losses, which will eventually chip away at the bottom lines of the non-life insurance companies.
"The recent rise of anti-Korea sentiment in China is a risk for domestic insurers," the report said. "By diversifying their overseas portfolio, they should lower their China risk."
Up to 35 percent of Korean insurance companies' networks in Asia were in China as of the end of last year.
The THAAD row will negatively affect the performance of not only Korean non-life insurers but also other financial companies, which have actively made a foray into the world's second-largest economy.
According to the Financial Supervisory Service, the combined assets of domestic bank branches and offices in China stood at $20.22billion at the end of June last year, or 25 percent of their total overseas assets.