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Kyobo reports singular performance amid downturn
Life insurers' net profit dives 32% in H1
By Lee Kyung-min
By Lee Kyung-min
Kyobo Life Insurance posted 481.9 billion won ($394 million) in net profit in the first six months of 2019, up 15.8 percent from a year earlier, outshining its big-name competitors including Samsung and Hanwha, data showed Monday.
According to the Financial Supervisory Service (FSS), Kyobo, among the top three life insurers, was the only one that posted a year-on-year increase in net profit. Samsung Life Insurance and Hanwha Life Insurance saw their year-on-year net profits drop 47.7 percent and 61.8 percent, respectively.
Kyobo's outstanding performance was attributed to its differentiated asset management strategy. In late 2017, it turned its “held-to-maturity securities” worth 29.7 trillion won into “available-for-sales securities” in the belief that interest rates would decrease.
This is in stark contrast to the fact that its rivals, including Samsung and Hanwha, preferred held-to-maturity securities as they bet on interest rate increases. For example, in 2017, Hanwha switched over 30 trillion won available-for-sales securities into held-to-maturity securities.
Available-for-sales securities can enjoy gains in valuation once interest rates fall because it leads to an increase in bond prices. Securities recorded as held-up-to-maturity, on the other hand, are evaluated only on their book value and interest incurred for holding.
The available-for-sales option is preferred when interest rates face downward pressure. This is one reason why the recent lower-than-expected key rate has helped Kyobo boost profits.
“Had the central bank key base rate been raised, we would not have seen a profit as great as this,” a Kyobo official said.
“Many insurers chose to hold their securities as held-up-to-maturity including our competitor Hanwha, expecting that the key rate will be raised. Our firm was the odd man out at the time, but looking back, it is absolutely rewarding.”
The 24 local and foreign life insurers reported about a combined 2.1 trillion won in net profit from January-June period, a 32.4 percent, or 1.2 trillion won drop from a year earlier.
Most of them suffered reduced net profit following a mixture of operating profit decline, weak investment returns and non-sales income drop.
Their operating profit loss stood at over 11.8 trillion won, a 4 percent, or 454 billion won increase from the year before, mostly due to an increased payout on savings-type products that reached maturity.
They posted a combined non-sales income of about 2.2 trillion won, a 12.4 percent drop from the year before, driven by service fee income cut.
The 24 firms' insurance premium income was about 52 trillion won in the first half of 2019, a 1 percent, or 541 billion won drop from a year earlier.
Premium income from protective-type products grew 814 billion won, while that from variable-type and savings-type decreased 832.8 billion won and 819.8 billion won, respectively.
The protective-type income surge resulted from a successful and intensive marketing ahead of implementation of K-Insurance Capital Standard (K-ICS) set to take effect in 2022.
Under the strengthened measure, insurers are required to up their cash reserves to boost their premium payment capability and thus healthy management.