Will Korean Re dominate in co-insurance?

By Kim Bo-eun

Korean Re CEO Won Jong-gyu

Attention is growing over whether local reinsurer Korean Re will be able to dominate in the new business of co-insurance, after it set up a partnership with the U.S. investment firm Carlyle Group. Carlyle is one of the world's largest investment firms with $221 billion in assets under management.

Korean Re dominates the local reinsurance market, taking up about 60 percent of market share, with foreign entities taking up the rest.

However, Korean Re has no experience in co-insurance as the business was only enabled recently after the authorities revised regulations as a means to alleviate the problems facing life insurers.

Life insurers here that hold the bulk of high, fixed interest rate policies face reverse margins as the key rate has been lowered to close to 0 percent. Under the system of co-insurance, insurers are able to transfer risks associated with their insurance policies, including interest rate risks, to reinsurers.

This is a dire task because insurers face the introduction of international financial reporting standards (IFRS) 17 in 2023. The new accounting standards impose stricter standards in calculating debt.

Foreign reinsurers here such as RGA and Swiss Re have extensive experience in co-insurance.

Korean Re's partnership with Carlyle Group is set to serve as a foothold in the sector. Carlyle has expanded its capabilities in the insurance sector by acquiring a 19.9 percent stake in Fortitude Group Holdings, whose companies include Fortitude Re, from AIG in 2018.

Korean Re said Carlyle will share its knowledge in co-insurance and that the two entities will develop services tailored for domestic insurers.

"Based on this partnership, we expect our reinsurance capacity to grow, as we offer co-insurance solutions leveraging Carlyle's asset management expertise, capital raising capabilities and Fortitude Re's global reinsurance know-how," a Korean Re official said.

Korean Re will likely have an advantage over KDB Life, which the private equity firm JC Partners is seeking to acquire and switch into a reinsurer.

KDB Life also does not have experience in co-insurance. JC Partners is known to have been seeking a partnership with Carlyle. JC Partners was selected as the preferred bidder for the acquisition of KDB Life, whose worth is estimated at around 550 billion won.

Views in the industry are that it is unlikely Carlyle will form another partnership similar to the one formed with Korean Re.