Korea’s insurance industry is stable, says Fitch

Fitch Ratings says in a new report that Korean life insurance sector’s Sector Outlook is stable, reflecting modest business growth, gradually improving negative spread burden, as well as an improving regulatory capital regime.

Fitch expects the life insurance sector to continue to expand, supported by a rapidly aging population.

The pace of growth is likely to be moderate, given that the Korean life insurance market is one of the more mature and saturated markets in Asia. The regulatory risk-based capital approach, implemented in April 2011, was further tightened in 2012.

This should prompt life insurers to focus on proper risk and capital management, commensurate with their business profiles.

The Korean life insurance sector continues to be plagued by a negative spread burden, amid a low interest-rate environment.

However, Fitch believes that the extent of the negative spread burden is unlikely to be as severe as that in the 1990s, as product characteristics have evolved over the years.

A persistently low-interest-rate environment could hurt overall investment sentiment as well as industry investment yields and profitability.

An inability by life insurers to attract fresh funds when needed, for example, via the capital markets, would likewise be negative for the outlook. Factors that could be positive for the outlook include the life insurers coping well with the upcoming regulatory capital changes, as well as successful and profitable overseas expansion.

Reuters