GlobalData has predicted that the South Korean reinsurance industry will grow at a compound annual growth rate (CAGR) of 7.0% from KRW9.6tn ($8.4bn) in 2021 to KRW13.4tn ($11.9bn) in 2026, in terms of gross written premiums (GWP), supported by climate change and positive regulatory developments.
The firm’s Global Insurance Database reveals that the South Korean reinsurance industry registered a 6.6% growth in 2021, recovering from a subdued 0.7% growth in 2020 due to the economic impact of the COVID-19 pandemic. General reinsurance accounted for 78% of the country’s reinsurance market, while life reinsurance occupied a share of 22%.
Swarup Sahoo, insurance analyst at GlobalData, said: “Growth in 2021 was supported by the introduction of coinsurance in 2020 that allowed insurers to transfer various financial risks such as investment risk, interest rate risk, insurance risk, etc. to reinsurers. Also, the country’s susceptibility to natural disasters has increased insurers’ catastrophic risk and forced them to increase the portion of ceded premiums with reinsurers. This has also supported the reinsurance growth in 2021.”
GlobalData said that the reinsurance market growth in South Korea will be supported by the expected roll out of the new capital regime, Korean Insurance Capital Standard (K-ICS) starting from 2023, along with the continuation of the existing IFRS-17 regime.
Insurers will be required to maintain higher risk-based capital as per the new regime, which will result in squeezing their capital buffer and increasing the dependence on reinsurance. Reinsurers will also benefit from coinsurance as it allows insurers to manage capital effectively by transferring risks.
Also, the introduction of compulsory liability insurance for medical device manufacturers and importers in 2022 is expected to support general reinsurance growth.
Sahoo added: “The rising frequency of natural disasters such as floods and landslides due to climate change will also support reinsurance growth. An example of that includes the recent floods in August 2022, which have registered motor insurance claims worth KRW158.3bn.”
Lower motor claims driven by a lower number of accidents and a strong risk-based capital rate have kept motor insurers less dependent on reinsurance until now. However, the increased frequency of extreme weather events and high losses arising from such events will prompt motor insurers to consider reinsurance in the future.
Sahoo concluded: “Demand for reinsurance will remain high over the next few years, supported by economic recovery and positive regulatory developments that will bring in more insurance lines into the purview of reinsurance.”
This declaration from GlobalData comes two years after it said that the Covid pandemic was putting more pressure on the South Korean life insurance market and would cause it to shrink by 1.2% in 2020.
Back then, Deblina Mitra, an insurance analyst at GlobalData, explained that lockdown restrictions due to coronavirus will further prevent new sales through insurance agents and, as a result, new business premiums which were already facing a declining trend could now drop even further.
Over the next few years, GlobalData expected South Korea’s life insurance business to grow at a compound annual growth rate of 0.9%, against the previous estimate of 2%.
