Diverging Paths of Life Insurers and Non-Life Insurers After IFRS17 Adoption

Since the introduction of the new international accounting standard, IFRS17, non-life insurers have shown steady growth by accumulating future profits,

Since the introduction of the new international accounting standard, IFRS17, non-life insurers have shown steady growth by accumulating future profits, while life insurers have been experiencing declining sales and profits. With interest rate cuts anticipated in the second half of the year, the debt burden on life insurers is expected to increase further. Let's take a closer look at the current state of the insurance industry and its future outlook.

Since the adoption of the new international accounting standard, IFRS17, at the beginning of last year, the domestic insurance industry's situation has seen contrasting developments between non-life and life insurers. Based on the Contractual Service Margin (CSM), a key metric under IFRS17, non-life insurers have been steadily accumulating future profits and reporting record earnings each quarter. In contrast, life insurers have faced declining sales and future profits.

As of the first half of this year, the combined CSM balance of the 10 listed insurers in South Korea amounted to KRW 80.854 trillion, up 4.9% from the same period last year. Of this, the CSM balance of non-life insurers increased by 7.4% to KRW 54.1586 trillion, while that of life insurers decreased by 0.2% to KRW 26.6954 trillion. Notably, Samsung Fire & Marine Insurance recorded the largest CSM balance at KRW 13.9553 trillion, a 10.8% year-on-year increase. On the other hand, among life insurers, only Samsung Life Insurance achieved a CSM balance exceeding KRW 10 trillion, amounting to KRW 12.698 trillion, up 6.6% from the previous year, while other life insurers like Hanwha Life showed a decline.

The differences are also apparent in net profits. In the first half of this year, the total net profit of non-life insurers reached KRW 5.7722 trillion, a 12.2% increase compared to the same period last year, while the total net profit of life insurers declined by 9.4% to KRW 3.5941 trillion. This trend is also reflected in insurance profit, where non-life insurers saw a 26.6% increase to KRW 4.448 trillion, while life insurers experienced a 15.9% decrease to KRW 1.1348 trillion.

These contrasting trends stem from the different strategies adopted by non-life and life insurers after the introduction of IFRS17. Non-life insurers have excelled in selling long-term products like third-party insurance, boosting their sales, while life insurers have struggled to expand their sales. The anticipated interest rate cuts in the second half of the year are expected to increase the debt burden on life insurers further. Under the IFRS17 regime, falling interest rates lead to a significant increase in liabilities, making capital management more challenging for life insurers.

An industry insider commented, “Since the adoption of IFRS17, the profit gap between life and non-life insurers is widening. With interest rate cuts likely to begin in earnest from the second half of this year, life insurers are expected to face greater difficulties in managing profitability and financial soundness.”

The insurance industry has undergone significant changes since the adoption of IFRS17, with non-life insurers and life insurers showing vastly different outcomes. With interest rate cuts anticipated in the coming months, the debt burden on life insurers is expected to increase. In this environment, it will be important to see how each insurer adjusts its strategies to cope with the changing landscape. The ongoing changes in the insurance industry will continue to be a crucial factor in determining how insurers achieve sustainable and stable growth.