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FOR IMMEDIATE RELEASE
HONG KONG - MAY 27, 2020 09:38 AM (EDT)
AM Best has revised its market segment outlook to negative from stable on South Korea’s insurance industry’s non-life insurance sector. Key factors underpinning the revised outlook include the sector’s deteriorated loss ratios in major business lines, escalated pressure on investment earnings amid a historic low interest rate environment and increased asset risk due to capital market volatility.
A new Best’s Market Segment Report, titled, “Market Segment Outlook: South Korea, Non-Life,” states that South Korea’s non-life insurance segment went through a difficult year in 2019, particularly in terms of underwriting performance. Despite a 4.8% growth in gross premium written (GPW), overall industry net profit declined by 39.9% year on year, which followed a 20% decrease in 2018. The main cause of the poor results was the increased loss ratio for the automobile insurance segment and worse-than-expected profitability in the long-term insurance line.
Against a backdrop of falling interest rates, especially after the central bank’s sharp 50 basis point-cut of the base interest rate to 0.75% in March, AM Best notes that non-life companies will face significant challenges in maintaining current investment spreads. Additionally, non-life insurers already face heightened asset risks through their investment exposure to industries that have been impacted directly by the COVID-19 pandemic.
AM Best is of the opinion that the overall underwriting performance of the non-life segment will continue to be under pressure for the next 12 months despite a recovering automobile insurance underwriting cycle following a series of premium hikes since 2019. It is also unlikely that the recent deterioration in profitability of the market’s biggest line of business—long-term insurance—will improve over the short term without more fundamental changes.
While the impact of COVID-19 on non-life insurance premium growth in the first quarter is anticipated to be minimal, a certain level of new business contraction will be inevitable as the situation continues for a while. However, an offsetting factor is the potential improvement of the automobile insurance loss ratio over the short term, due to reduced mobility, which AM Best expects will partly help to speed up the segment’s improving underwriting cycle. AM Best will continue to closely monitor the development of the industry amid the COVID-19 pandemic, and will assess any impact arising on rated insurers in South Korea.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=297360 .
To view current Best’s Market Segment Outlooks, please visit http://www.ambest.com/ratings/RatingOutlook.asp .
AM Best is a global credit rating agency, news publisher and data provider specialising in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.