Better credit quality ahead for South Korean insurers in 2021

Life insurers saw better profits in 2020, whilst non-lifers saw improved loss ratio.

South Korean insurers’ credit quality is expected to improve in 2021 backed by rebounding earnings which in turn was partly driven by rising interest rates, according to a Fitch Ratings report.

However, this can be offset by capitalisation pitfalls caused by rising asset risk and lower unrealised gains.

Life insurers saw better profits in 2020 as the pressure on guaranteed reserves were offset by higher stock prices and interest rates. On the other hand, the loss ratio of non-life insurers improved as less traffic and hospital visits amidst the pandemic led to lower claims.

Insurers’ continued interest in alternative investments is expected to lead to higher asset risks, Fitch noted, as higher investment risk from financial-market fluctuations could lead to volatile profits. 

Each insurer’s asset allocation to overseas investments may vary, based on its capital adequacy level, the report said.

In the short term, there may be lower risk-based capital ratios due to lower unrealised gain on bonds amidst higher rates and asset risks.