Korean reinsurers face new challenges under IFRS17 and K-ICS
Under the new IFRS17 and K-ICS frameworks, insurers in Korea are adopting more advanced capital management strategies and exploring diverse capital solutions to optimise their balance sheets. Product innovation, identified as a top challenge by over 90% of insurers, is expected to drive growth, with increased collaboration between insurers and reinsurers. RGA Korea’s Mr Micheal Shin tells us more.
by Reva Ganesan
In 2024, the Korean insurance industry regained its growth momentum following a challenging 2023. Total premium income for the first half of 2024 reached over KRW114tn ($86bn), marking a year-over-year increase of approximately 4% from the same period in 2023.
RGA Korea CEO Michael Shin, who is also senior vice president for Japan and chief marketing officer for Asia, said that the growth was primarily driven by robust sales of limited pay whole life insurance, which attracted customers with higher returns at maturity in the life insurance sector.
In the non-life insurance sector, health and accident insurance led market growth, with accident and health sales outpacing life insurance sales, Mr Shin said.
“On the downside, market competition has intensified as all insurance companies are focused on expanding protection products to secure contractual service margins (CSM) under the IFRS17 and K-ICS regimes. Insurers have expressed profitability concerns over new products as margins thin under competitive pressures,” he said.
Biggest demands and market trends
According to the Korean Statistical Information Service, by 2025, South Korea is projected to become a ‘super-aged society’ - with over 20% of its population being 65 or older.
As the ageing population grows rapidly, the demand for life and health insurance among seniors has significantly increased, Mr Shin said.
In 2024, RGA conducted consumer market research of the senior segments across eight markets in Asia, including South Korea.
He said that the research showed that a large proportion of seniors have pre-existing medical conditions, such as hypertension, high cholesterol and diabetes, which often leads to them not passing standard underwriting, resulting in either part of the coverage being declined and/or subject to high premium loadings.
“In super-aged countries like Japan, Korea and Taiwan, the majority expressed that they are not confident in the level of public healthcare in a critical illness (CI) event, hence they see private health insurance, annuity and CI insurance as valuable protection options.
“Nonetheless, they are often frustrated by the higher premiums and challenges in the underwriting process when purchasing insurance or feel that the products do not meet their needs or are too difficult to understand,” he said.
Shift in product design
Mr Shin said due to economic challenges in South Korea, many consumers are facing financial strain and struggling to allocate money to insurance.
This situation underscores the importance of value for money when choosing insurance products.
“To offer affordable prices with wider coverage, there has been a shift in product design from diagnosis-based lump-sum payments to treatment-based continuous payments. This approach has helped provide affordable premiums while covering advanced medical technologies.
“Recently, a new cancer treatment product that offers comprehensive coverage for all types of cancer treatment at an affordable premium has been launched and has quickly become one of the best-selling items in the market, with RGA’s support,” he said.
Regulatory challenges and adjustments
When asked about challenges facing Korean reinsurers in 2024, Mr Shin said IFRS17 and K-ICS “have introduced more discipline and significant changes to business strategies”.
“Insurers are now focusing on top-line sales of high CSM products, leading to fierce competition in the protection market. This shift has resulted in an increasing demand for new protection products,” he said.
“As regulatory adjustments put pressure on the K-ICS ratio and economic changes add more volatility under IFRS17, insurance companies are seeking diverse capital solutions. These include reinsurance solutions, issuing subordinated bonds and hybrid securities, among others,” he said.