Bo-eun leads the digital content team. She has covered foreign affairs, North Korea, tech, economy and gender issues at The Korea Times. She did a short stint at the South China Morning Post in Hong Kong, where she obtained a new perspective on news production and life. Small sources of joy for her are lounging in the sun, having a good latte and swimming.
Low interest rates, IFRS 17 put insurers up for sale
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By Kim Bo-eun
By Kim Bo-eun
Low interest rates and a new set of accounting standards to be introduced has created increasingly tough circumstances for insurers, leading to many small-and medium-sized firms to be put up for sale.
The IFRS 17, which will replace the current accounting standards for insurance contracts in 2022, requires insurers to secure a greater amount of capital. This is because liabilities in their insurance contracts will be measured by market value instead of book value.
Under the current low interest rate, insurers are seeing profits from investments fall.
Premium income is falling, as they have stopped selling savings-type policies. Under the IFRS 17, such policies will be counted as liabilities. The growth rate of premium income fell from 2.2 percent in 2016 to -4.9 percent in 2017 and -2.7 percent last year.
This has led to a fall in net profits. Life insurers' net profits in the first half of last year contracted year-on-year. Meanwhile, the amount of insurance proceeds is growing annually.
Amid such conditions, three insurers are out in the market for M&As ― Prudential Life Insurance Company of Korea, KDB Life and The-K Non-Life Insurance. Three more are expected to be put up for sale this year ― Tongyag Life, ABL Life and MG Non-Life Insurance.
Prudential Life Insurance Company of Korea is the local life insurance unit of the U.S.-based financial group. It is 11th largest in the market and fifth by net profit as of the first half of 2019. In addition, it is fiscally sound, with a risk based capital ratio of 505 percent. This has drawn the attention of KB and Woori financial groups which are seeking to add a life insurer to their portfolio.
The-K Non-Life Insurance is a small insurer owned by the Korean Teachers Credit Union. Hana Financial Group is in the process of acquiring the firm.
The Korea Development Bank (KDB) had initially planned to sell KDB Life by the end of last year, but failed due to a lack of interest in the market.
KDB Life ranks 13th in the market by total assets, and the bank has attempted to sell the life insurer three times since 2014.
“The process for the preliminary bid is still ongoing,” a KDB official said Monday. As for a timeline for the insurer's sale, he said, “There may be changes, but we will continue with the process as we stated earlier.”
While the insurers said they have heard nothing, China's Dajia Insurance Group is expected to put up Tongyang and ABL life up for sale in the first few months of this year.
Tongyang began accepting early retirement last year, according to the company.
The Korean Federation of Community Credit Cooperatives, the majority shareholder of MG Non-Life Insurance, is forecast to sell the insurer this year as well.
“The insurance industry, especially life insurers, face difficult circumstances, as the market has reached saturation and ultra-low interest rates continue. Insurance proceeds grow while profit from investments falls and the IFRS is posing an additional burden,” an official of the Korea Life Insurance Association said.
“Circumstances are especially tough for smaller insurers, which are unable to reduce costs. They will see their competitiveness fall if they do not seek to differentiate their business.”