South Korea’s life insurance sector is stable and underpinned by continued demand for insurance policies, rising risk awareness and increasing emphasis on prudent capital management, according to data from Fitch Ratings.
The ratings agency said the growth of life premiums in South Korea is likely to slow from the 6% estimated for 2012 as the South Korean market matures, causing insurers increasingly to expand their operations overseas.
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Fitch believes that key growth areas will centre on traditional protection-related and pensions products, driven by an aging population and consumers’ strong spending power. It also noted that the approach to measuring risk-based capital (RBC) is under review by the South Korean regulator with a view to further tightening.
The ratings agency expects the enhanced regulatory capital regime to strengthen industry capitalisation and financial strength, and to result in a stronger focus by life insurers on risk management.
In terms of challenges facing the sector, Fitch noted that the profitability of the South Korean life sector, especially of the older and larger insurance companies, continues to be weighed down by a negative spread burden that is not helped by a low-interest-rate environment.
However, Fitch says the extent of the negative spread burden is unlikely to be as severe as that seen in the 1990s, as the market evolves towards floating-rate from fixed-rate products and to products with low or non-guaranteed benefits from those with high guaranteed benefits.
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