Non-life insurers ramp up corporate lending as banks pull back

The logo of Samsung Fire & Marine Insurance is seen outside the main entrance of its headquarters in Seoul in this undated photo. Yonhap

Non-life insurance companies in Korea are increasingly expanding into corporate lending — a market long dominated by banks that are now gradually pulling back due to rising risks in other areas, company officials said Friday.

For these insurers, corporate lending offers a new opportunity to offset declining profits caused by wildfires, torrential rains and other challenges they have had to cover so far this year.

Data compiled from five major non-life insurers — Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, KB Insurance and Meritz Fire & Marine Insurance — showed their outstanding loan balance in the first half of this year reached 72.93 trillion won ($52.37 billion).

This figure represents a 9.4 percent increase from a year earlier and contrasts with a more than 30 percent decline in net profits from the insurance business over the same period.

Company officials said corporate lending accounted for most of the 72.93 trillion won as the companies expanded into that market.

For example, Samsung Fire & Marine Insurance increased its corporate loans by more than 1.1 trillion won, while DB Insurance’s increase reached 4 trillion won.

“Major non-life insurers are pushing into corporate lending as an alternative source of income,” one official said, adding, “They would otherwise struggle to cope with property insurance losses caused by wildfires in southeastern Korea in spring, followed by nationwide torrential rains in summer.”

Another official pointed to the opportunity that has presented itself as commercial banks are “taking a breather” from corporate lending in a bid to urgently address potential risks.

These risks include the mis-selling of equity-linked securities tied to Hong Kong’s benchmark index, collusion over loan-to-value ratios and price manipulation by primary dealers in government bond auctions.

The five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — face fines totaling up to 9.5 trillion won this year.

These fines are not just penalties, but risk factors that directly impact capital soundness, pressuring banks to reduce corporate loans by 88.7 trillion won over the next 10 years to maintain current capital ratios without raising additional capital.

Some industry officials expect non-life insurers to further expand their presence in corporate lending in the coming years.

Meanwhile, to sustain competitiveness in the insurance market, non-life insurers have been aggressively offering policies such as caregiver insurance with increased daily benefits and noncancelable policies with premiums cut in half.