Gov’t plan to reduce stake may shake Seoul Guarantee Insurance’s status

Fitch also forecasts a decline in underwriting profitability through 2024 due to rising claims.

Seoul Guarantee Insurance (SGI) is expected to keep a dominant market spot in the short to medium term, although plans by the government may gradually reduce its stake, according to Fitch Ratings.

Fitch highlighted SGI’s strong capital position, with its solvency ratio under the Korean Insurance Capital Standard (K-ICS) improving to 445.4% in the first half of 2024, up from 437.3% in 2023, far exceeding the regulatory minimum of 100%. 

The company’s capital adequacy is considered sufficient to withstand potential economic and operational shocks.

SGI’s performance, however, faces near-term headwinds. Fitch also forecasts a decline in underwriting profitability through 2024 due to rising claims driven by high interest rates and slower economic growth. 

The combined ratio, a key profitability metric, increased to 96.5% in the first half of 2024, compared to 81.6% in 2023 and 68.1% in 2022. 

Return on equity also fell to 3.2% during the same period, down from 8.3% in 2023. Fitch expects a gradual recovery in underwriting performance starting in 2025 as interest rates ease.

Whilst Fitch anticipates SGI to retain its market leadership, the company faces concentration risks, with over 95% of its exposure linked to the domestic market.

Government backing continues to support SGI’s financial profile. The Korea Deposit Insurance Corporation (KDIC) holds a 93.85% stake in the insurer, and Fitch believes government support would be likely if needed due to SGI’s critical policy role.