AM Best has revised its market segment outlook to stable from negative for the South Korea non-life insurance industry, according to a new AM Best report.
In the new Best’s Market Segment Report, "Market Segment Outlook: South Korea Non-Life Insurance," AM Best states that the revision is based on the following factors:
Improved underwriting performance, driven by a favourable auto loss ratio, outweighing the impact of increased long-term medical claims;
Stabilised expense ratios mainly as a result of reduced market competition;
Potential asset risk effectively limited and controlled by most insurers amid volatile capital market in 2020; and
Market interest rate rebound that may alleviate pressure on running yields of fixed income assets.
Although the ongoing COVID-19 pandemic led to partial disruption of face-to-face sales activities, the impact on overall top-line was limited, given non-life insurers’ large base of recurring long-term insurance premiums and strong growth of automobile insurance due to several rounds of industry-wide rate increment exercises in 2019 and early 2020 as well as fast expanding online sales of automobile insurance. Favorable claims experience due to the reduced traffic during the pandemic also contributed to the material improvement in auto insurance operating performance.
Over the last few years, the South Korean non-life segment reported a rising overall expense ratio–to 23.0% in 2019 from 19.0% in 2015–although it appears to have stabilised at 21.9% in 2020. AM Best notes that the over-competition in the general agency channel has receded with the implementation of a regulatory restriction on sales commissions in January 2021 and insurers’ effort to recover bottom lines.
Investment profits, which are companies key source of earnings, declined by 9.4% in 2020 mainly because of the base effect in 2019 when bond disposal gains surged. Despite excluding the impact of disposal gains, AM Best notes that the running yields for financial securities declined as market interest rates mostly remained low, following two rounds of base rate cut by the central bank in early 2020. However, market rates have since rebounded in the second half of 2020, and exceeded pre-pandemic levels as of the first quarter of 2021. AM Best expects significant asset volatility or further sharp deterioration in investment yields are unlikely and insurance company’s investment margin to remain at a similar level over the near term.
Over the next 12 months, AM Best expects non-life companies to maintain a solid pace of expansion, driven by stable growth in the long-term insurance, automobile and general property/casualty insurance segments. AM Best also expects underwriting profitability to remain stable over the next 12 months due to favorable performance in auto segment, despite underwriting pressure in the long-term insurance segment as rising medical claims remain a concern.
To access a full copy of this market segment report visit http://www3.ambest.com/bestweek/purchase.asp?record_code=308572.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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