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| Financial Supervisory Service Governor Lee Bok-hyun, center, answers questions after joining an event for small and medium-sized enterprises here, at Hana Global Campus in Incheon, west of Seoul, Aug. 10. Yonhap |
1st-half earnings from insurers on par with those of major commercial banks
By Lee Min-hyung
Insurers have chalked up surprisingly robust earnings in the first half of 2023 on their first introduction of the latest global insurance contract reporting standards.
However, concerns remain over whether the earnings growth was driven by business fundamentals, as some insurers may have exaggerated their profits by making use of a legal blind spot in interpreting their earnings based on the International Financial Reporting Standards (IFRS) 17.
The Financial Supervisory Service (FSS) is still fine-tuning details on its guidelines for the IRFS 17 by holding talks with local insurers. As it has been less than a year since the adoption of the new standards here, industry officials said it would take a few more years before accurate earnings results are reported under uniform criteria.
"Even if the IFRS 17 was adopted at the end this year after a decade of preparation, it appears to take more time for the soft landing of the standards here, as watchdogs need to listen to the voices and complaints from each insurer and minimize market confusion," a source from an insurance industry said.
Under the new accounting principle, Korea's major life and non-life insurers generated a solid net profit of around 8 trillion won ($5.97 billion) between January and June 2023. This on par with the combined total for commercial banks during the same period here. According to FSS data, the nation's non-life insurers chalked up a combined net profit of around 4.6 trillion won. Life insurers also reached 3.4 trillion won in the first half.
This is close to that of Korea's five major lenders ― KB, Shinhan, Hana, NongHyup and Woori ― which reported a combined net profit of around 8.1 trillion won during the same period. This is not a typical earnings gap, as banks are generally the most profitable financial firms generating superior better earnings reports in comparison to other sectors such as insurance and securities.
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| A logo of Samsung Life Insurance is seen in front of its office in Seoul. Yonhap |
Top-ranking officials in the industry also said the ongoing confusion in calculating insurers' earnings in line with IFRS 17 would take at least a couple of years to normalize.
"(Some insurers) appear to try a shoddy set of profit exaggeration following the adoption of IFRS 17," Kim Yong-beom, vice chairman at Meritz Fire & Marine Insurance, said in a conference call, Monday. "But such attempts are easy to detect. The market will be on track for normalization in two to three years after IFRS 17 is settled here."
Meanwhile, Samsung's two financial affiliates attained leading positions in the life and non-life insurance markets in the first half.
Samsung Fire & Marine Insurance chalked up 1.21 trillion won, up 27.3 percent for the first six months combined on the introduction of IFRS 17 and a fall in its insurance loss ratio. Samsung Life Insurance also maintained its leadership with a net profit of 974.2 billion won, up 54.5 percent during the same period.
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