The life reinsurance market in South Korea has some unique characteristics – which make it interesting for a range of players. In this competitive mix, Pacific Life Re has been a quiet achiever as Messrs Andrew Gill and Phil Hay tell us.
While some markets were virtually bowled over by the pandemic, South Korea managed to come through in decent shape. This played to the strengths of some of the life reinsurers active in the market, including Pacific Life Re.
We spoke to managing director, Asia and Australia Andrew Gill and head of Korea Phil Hay to find out about some of the realities of working in the fast-growing market.
Mr Gill is unreservedly bullish. “Compared to some other markets in Asia, which slowed down a bit as a result of COVID-19, we didn’t see as much of that in Korea which had a pretty good response to the pandemic and got through some of the early stages quickly,” he said. “The markets still seem to be pretty active where other markets tended to die down a bit. So we didn’t really see the drop off in business volumes.”
Mr Hay added more granularity. “You’re actually seeing a rise in protection business in Korea because a lot of companies are moving away from savings-related products with the low interest rate environment,” he said.
One saving grace for the nation seems to have been the shift toward simplified issue products – especially critical illness (CI). “Korea is fascinating in terms of how they’ve been able to simplify and speed up the whole insurance process,” said Mr Gill. “That drive continues – moving from three-question CI-type products, to two questions and now one-question products that cover a reasonable range of critical illnesses. That trend seems set to continue in the market. It’s still very fast-paced and there are a lot of opportunities,” said Mr Gill.
Regulation and coinsurance
Pacific Life Re believes in boutique relationships with primary insurers. “We have a small number of select partners,” said Mr Gill. “We’re not the sort of reinsurer who’s going to have relationships with everyone in the market. We focus on five to 10 clients and work with them in developing their businesses and differentiating our offerings to them, as opposed to just trying to do one thing and spreading across the market.
“Our plan is to continue to grow those partners’ businesses through product design, through innovation and simplifying the insurance process. We expect those partners to grow and we expect that our share of the market to grow accordingly,” Mr Gill said. “There are also regulatory and market environment changes from which we expect some upside as well.”
“The industry here is very tight and it’s very much trying to get through the regulatory and accounting change that’s coming,” said Mr Hay. “Much of the industry is facing up to this and it gives us an opportunity not only to look at how we can support insurers better with the dynamic nature of the change that’s flowing through - but also, how can we capitalise on our expertise.”
It is worth bearing in mind that the regulator requires reinsurers to have an onshore presence in Korea – not simply a representative office – but this has not led to a restrictive environment.
Plenty of competition
Pacific Life Re is not the biggest player in Korea and most of the large global reinsurers are also in evidence but growth is not hard to find. “There’s a lot of competition among reinsurers and a lot of the reinsurers are still finding different areas for opportunity,” said Mr Gill.
“Reinsurers are finding it’s a market where you can continue to push boundaries, simplifying CI-type business, which creates opportunities for reinsurers,” Mr Gill said.
“If you look at the speed to market that can be achieved in Korea, it is the likes of which I’ve never seen before,” said Mr Hay. “From a reinsurance point of view, it’s a matter of understanding the dynamic nature of innovation in Korea and how you can match that speed of innovation and match that speed of growth.”
Product design
Designing products for the Korean market for Pacific Life Re is a hybrid process. “We have a regional product development team in Singapore, but that’s about coordinating what’s happening in different markets,” Mr Gill said.
“We augment this with product development expertise in our in Korea office also. Our elderly living care product was developed first in Singapore - and then we looked at the different markets where we could use it. We use that quite a bit in China but it didn’t fit quite so well in the Korean market. But conversely, some of the simplified issue products - and some of the wordings – that we developed for Korea, we will look at whether or not they might be usable in other markets as part of the product development process,” he said.
“It’s a dynamic market and it’s an innovative market. It is so unique,” said Mr Hay. “I find it quite exciting because there are so many peculiarities that exist within the Korean industry that don’t exist in a lot of other markets globally.”
One challenge with Korea is that some regulations are quite different from other markets. “In Korea you can’t ask questions about family history, for instance, in terms of CI cover and that means that a fully-underwritten CI product in Korea is very different to those you will find in many other markets. That makes the market very different and unique,” Mr Gill said.
Pricing products
For Korea, sign-off for the pricing of all products must happen in the Korean branch with technical support from the Singapore hub as necessary “You do need people that understand the Korean market and the nuances around it. The main thing on the CI pricing side is that the potential of anti-selection against you is going to be higher in Korea than some other markets given the nature of the underwriting”.
“There’s a lot of judgement involved, but it’s just a question of being very mindful of the fact that although you are dealing possibly with the same underlying product, the levels of anti-selection in the first couple of years of the product can be quite different. And that’s what you really do need to allow for in the product design and pricing and risk evaluation.”
Agency business
Agencies remain very strong in Korea. “It’s been a market that’s very much driven by agency forces,” Mr Gill said. “And you’ve got some very large companies that have very large agency forces. But there still seems to be a slow but steady trend towards more generalised advice. We have advisers that can sell you more than one company’s product. It’s still a minority of the market, but it’ll be interesting to see where that goes over time.”
“When you’ve got an industry that has a reach that can be obtained through 400,000 financial advisers, you’ve got an industry that demands respect,” said Mr Hay. “You’ve got an industry that has capabilities. A lot of other countries don’t have that same range. From a distribution point of view, you’ve got very strong channels.” A
| Saudi Arabia Finance Ministry seals $3bn financing deal with K-Sure
Saudi Arabia’s Finance Ministry, through the National Debt Management Centre (NDMC), has signed a long-term financing agreement with Korea Trade Insurance Corporation (K-Sure).
The agreement was signed by Saudi finance minister Mohammed Al-Jadaan and by the chairman of K-SURE Lee In-ho last month, reported the Saudi Press Agency.
Mr Al-Jadaan said that the agreement arises within the framework of cooperation between the two G20 members — Saudi Arabia and South Korea.
This cooperation is expected to lead to the arrangement of meetings between service providers from South Korea and the owners of major future projects with the aim of securing financing on these projects.
NDMC CEO Fahad A Al-Saif said that the financing provided amounts to $3bn with very strong interest received from international banks across geographies. The transaction has been closed with 10 international banks.
The financing provided will be used for strategic government projects in line with the kingdom’s Vision 2030 programme.
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