Value context and insight. lkm@koreatimes.co.kr
Life insurers face worst earnings momentum
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By Lee Kyung-min
By Lee Kyung-min
Most life insurers are expected to suffer continued weak earnings stretching into the third quarter, due to fast-declining sales of key products and poor asset management amid low interest rates, data showed Wednesday.
Apart from Samsung Life and Tongyang Life, both of which managed to avoid an earnings shock thanks to income following the sales of subsidiaries, most of them will report a double-digit drop in the July-September period.
According to data from FnGuide, a financial information provider, Samsung is expected to record 307.8 billion won ($263 million) in net profit in the third quarter, up over 3 percent from the year before. But about a third, or 100 billion won came from the sale of a real estate investment trust to Kyobo Life.
Tongyang's expected 80.5 billion won in net income in the same period would have been worse had it not been 80 billion won in income earned after selling off an asset management subsidiary to Woori Financial Group.
Hanwha reported the worst performance with its third quarter net profit dropping to 62 billion won, sliding nearly 95 percent from the year before.
This was mostly due to a worse-than-expected performance in volatile stock market investments that incurred 50 billion won in losses.
Mirae Asset Life saw 26.3 billion won in net income in the July to September period, up over 86 percent from the year before, thanks to robust sales of variable-type and retirement savings products.
Retirement savings products' service fee income, a fixed amount of income unaffected by fluctuations of key base interest rate, helped the firm see a stable profit.
According to a researcher at the Korea Insurance Research Institute (KIRI), their worsening profitability is likely to continue, as insurers will no longer be able to give back subscribers a high rate of return due to low interest rates.
The low key base rate has led to a substantial drop in the sales of whole life insurance, the key products sold by most life insurers, as well as savings-type products that used to promise relatively high returns.
“Subscribers no longer have an incentive to hold the two products until maturity. Life insurers would have to review instances from Japan and Europe that have also experienced low interest rates. A different approach to increase the sales of variable-type products could be an option,” he said.
According to the Financial Supervisory Service, Korea's 24 life insurers reported around a combined 2.1 trillion won in net profit in the first six months, over a 32 percent drop from about 3.1 trillion won the previous year.
Non-life insurers in the same period saw their net profit drop to 1.4 trillion won, down 29.5 percent from the year before.