Best’s Market Segment Report: AM Best Revises Outlook on South Korea’s Non- Life Insurance Market to Negative Amid COVID-19 Pandemic
HONG KONG--(BUSINESS WIRE)-- AM Best hasrevised 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. Since the outbreak of COVID-19, South Korea’s government has introduced various economic stimulus measures, including a sharp base interest rate cut of 50 basis points to 0.75% in March, the lowest level in the country’s history. Although the stock market has partially recovered from bottoming out in mid-March, it has not fully recovered to pre-pandemic levels.
At present, non-life insurers already face heightened asset risks through their investment exposure to industries that have been impacted directly by the COVID-19 pandemic. Additionally, although the full severity and longevity of impacts from COVID-19 are yet to be determined, AM Best expects that the pandemic’s impact on the real economy will inevitably result in greater credit risks from a broader range of assets, including direct and indirect investments in real estate.
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. It is 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, such as a revision in coverage or more adequate pricing that would reflect changes in policyholders’ medical behaviour.
Although AM Best anticipates the impact of COVID-19 on non-life insurance premium growth in the first quarter to be minimal, a certain level of new business contraction will be inevitable as the situation continues for a while. Policy cancellations are also likely to increase with the potential economic fallout from the pandemic. 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.
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. For more information, visit www.ambest.com.