Insurers selling real estate to deal with worsening profits, new financial rules

By Lee Min-hyung

Hyundai Marine & Fire Insurance's business tower in southern Seoul / Courtesy of Hyundai Marine & Fire Insurance

Insurers are selling real estate to enhance financial soundness ahead of the soon-to-be implemented IFRS 17 accounting standards, which will take effect in 2022.

The move comes amid mounting concerns over the international accounting framework, as it urges insurers here to secure more capital, while reducing their debt ratio, according to industry officials.

Under IFRS 17, valuations of liabilities will be measured by market value rather than book value. Insurers must adhere to the new standard by piling up more cash.

Initially, the introduction of the new accounting rule was slated for January 2022, but it may be delayed for another year amid requests from insurers here and abroad.

On Feb. 6, Hyundai Marine & Fire Insurance, the nation's second-largest non-life insurer, decided to sell its building in Gangnam, southern Seoul. The company plans to secure an agent by the end of this month to sell its office tower, the value of which is estimated to reach as high as 300 billion won ($252.3 million).

The decision also largely reflects the firm's worsening profitability. In 2019, the company posted 269.1 billion won in net profit, down 27.9 percent from the previous year.

“For the past three years, insurers have rushed to sell real estate they hold to deal with the worsening market conditions and meet the new financial standards set by the international authority,” an official from the insurance industry said.

Samsung Life Insurance, the leading life insurer here, has particularly remained agile in liquidating its properties in recent years. The company sold real estate worth 549 billion won for the past two years.

In 2016, the company relocated its headquarters to southern Seoul in 2016 by selling its previous head office in central Seoul at 580 billion won.

According to data from the Financial Supervisory Service, life insurers' combined property assets were worth 12.64 trillion won as of the end of the third quarter in 2019, down by more than 2 trillion won from four years ago.

Things were no different for non-life insurers. They went on selling their real estate assets for the past few years. At the end of third quarter, their property assets were valued at 5.97 trillion won, a decline of more than 7 percent from 6.5 trillion won in December 2016.