According to reports in the Korean press, private equity company, Carlyle Group, has joined hands with Korean Re, the largest reinsurer in South Korea, to partner as co-reinsurance providers.
This will make the companies the first co-reinsurance providers in a market estimated to grow to 60 trillion won to 100 trillion won ($50 billion to $84 billion) over the next few years.
They will target insurance companies that are suffering from reverse margins in the extended low interest environment and tightened accounting rules which could force them to bolster capital holdings.
Korean Re spokesman Tae-shik Hong commented for The Korea Economic Daily: “Together with Carlyle, Korean Re will develop co-reinsurance solutions tailor-made for domestic insurance companies. We will cooperate in various areas, including designing and structuring products, managing reinsurance assets, taking care of capital requirements and new capital raising.”
The Korea Economic Daily reported that co-insurance is a reinsurance product that allows insurers to transfer interest rate related risks to reinsurers. South Korea introduced the policy in June to help local insurers reduce insurance liabilities following the adoption of International Financial Accounting Standards 17 (IFRS17) and the new Korean-Insurance Capital Standards (K-ICS).
The co-insurance that they will take on covers all types of risk from both assets and liabilities at insurance firms. This will prove to be much better for clients as traditional reinsurance provides only partial risk coverage for the policy holders. This isn’t assuming risks such as a possible interest rate drop which affects risk-based capital ratios.
Korean Re will assume the risk from assets and liabilities held by insurers for reinsurance premiums, while Carlyle manages the premium incomes. Korean Re, with a capital of 2.4 trillion won (USD $2bn), controls more than 60% of South Korea’s reinsurance market.
Korean life insurers are reportedly in talks with reinsurers such as Korean Re to sign a co-insurance contract, according to the Korean press.