Listings to Change Landscape of Life Insurance Industry
By Yoon Ja-young
The landscape of the local life insurance industry is expected to undergo a major facelift, with the nation's leading life insurers debuting on the main bourse in the coming months.
Following the listing of Tong Yang Life Insurance last year, Samsung, Korea and Mirae Asset Life Insurance are all planning listings this year.
It is expected to upgrade the local life insurance industry by enhancing transparency and paving the way for local players to foray into overseas markets.
"The listing of Samsung Life Insurance will be one of the biggest listing events of the bourse. When adding the listing of Korea Life Insurance, a tremendous amount of money will flow into the exchange," said Park Ga-young, an analyst at Korea Investment & Securities. She expects up to 27 trillion won for the listings, which is 3 percent of the total market cap of the bourse.
"Though their profit is small compared to their assets, life insurers are likely to rise as a new investment alternative in the finance sector," Samsung Securities said in a report.
It added that the insurance industry has high growth potential, as the demand for insurance will change given the aging of the society. "The insurance premium incomes of life insurers are expected to mark an annual 6.9 percent growth on average until 2012, growing into a market worth about 91 trillion won," the report said.
In regards to the listings, Boston Consulting Group (BCG) said there is expected to follow a wave of cost reduction. "The mindset when it comes to performance assessment will shift as a result of insurance companies going public. Shareholders will pressure the firms to increase operational efficiency," the consulting firm said.
Insurers are also preparing for a new accounting and risk assessment system. When the risk-based capital system is adopted, insurance firms will have their level of risk in asset management assessed. Each will have to stock different amounts of capital depending on their level of risk.
Some insurers, especially those who have managed assets conservatively, welcome the move as it will pull up the solvency ratio, but others apparently don't.
The introduction of the new risk assessment system is expected to change the way insurers manage their assets. They are likely to turn to safe assets and raise capital.
Various laws related with the insurance industry are pending at the National Assembly. The top financial regulator, for example, submitted an insurance business act revision that aims at allowing insurance firms to provide payment and settlement services. The revision failed to get approval at the National Assembly in February, but the revision is likely to be resubmitted.
Once they are permitted to do so, as the government plans, insurance subscribers will be able to pay utilities fees and credit card bills as well as transfer money through their insurance accounts. Banks, however, are opposing the plan.
Another issue involves Nonghyup, or the National Agricultural Cooperative Foundation, which is to be transformed into a financial holding company.
Nonghyup already has a big slice of the insurance market, being the fourth largest entity in the life insurance market. However, as Nonghyup's insurance business was in the form of mutual aid, it was exempt from various regulations, such as bancassurance regulation.
Currently, the law stipulates that when a bank sells insurance products through bancassurance, the products of one company should not exceed 25 percent of the bank's sales portfolio. Thanks to the exemption, Nonghyup has mostly sold its own insurance products through its nationwide channel.
Nonghyup demands that the exemption should continue even after its insurance business becomes an insurance company. Insurance companies are protesting that Nonghyup is being given undue favors for its insurance business.
The top financial regulator is focusing on protection of insurance customers this year. It already bolstered regulation on insurance advertisement. It is also keeping an eye on the sales process.
Insurance companies are also strengthening customer protection, following the global financial crisis.
Life insurance companies are expected to bolster their sales drives, focusing on growth.
"Due to tough economic conditions, the sales record was not good last year. It was especially so with annuity and derivative insurances," said a spokesperson at the Korea Life Insurance Association.
"As the economy is expected to turn to recovery mode this year, the sales are also estimated to return. Insurers are planning to focus on efforts to boost marketing and strengthening sales channels," he added.