“Premium growth is likely to slow to low single-digit over the next 12-18 months, reflecting stable but gradually saturating supply of health protection products and subdued sales of savings and annuity type products,” Moody's Ratings said in a commentary, published on 31 March 2026.
It also stated that South Korea’s policy rates have “remained unchanged since May 2025, while long term market rates have been rising, which supports insurers’ capitalisation.”
“We expect that a sustained focus on capital-generative health protection products, significant capital securities issuances in 2024-2025, and disciplined asset-liability management will further support insurers’ capitalisation,” said the report.
“Despite a moderate increase in risk appetite, we do not expect a significant increase in insurers’ high-risk assets given the increased risk charges and illiquid features.”
The report added: “Profitability, particularly underwriting profitability, will come under pressure due to limited pricing flexibility, and rising claims and expenses amid intense competition. Lower new money yields and elevated foreign exchange hedging costs will weigh on investment income.”
Low single-digit life premium growth amid stable macroeconomic conditions
The report noted its expectations of South Korea’s real GDP growth by 1.8% in 2026 and 2.0% in 2027, “driven by a steady economic rebound due to the resolution of political instability, policy rate cuts and supportive fiscal policies”.
“The Bank of Korea will likely maintain a slow and cautious approach to its rate-cutting cycle, which has been on pause since May 2025,” said the report.
“Long-term interest rates have actually been rising in the last 12 months, which supports insurers’ capitalisation.”
The ratings agency also noted expects premium growth to decelerate to 2%-4% over the next 12-18 months from an estimated 7% in 2025, “reflecting stable yet gradually saturating supply of health protection products and persistently subdued sales of savings and annuity type products”.
Asset quality will remain largely stable
“Insurers’ risk appetite may rise moderately as they seek to enhance investment returns amid declining asset yields, partly driven by the government’s ‘productive financing’ initiatives that encourage financial institutions’ investment in strategically important sectors such as semiconductors and AI,” the report showed.
“However, because these investments entail higher asset risk due to their equity and debt exposure to highly cyclical sectors, we do not expect insurers’ exposures to increase materially.”
As a result, the agency highlighted that insurers “are likely to continue prioritising investments in long-duration, high-quality bonds”.
Capitalisation will be stable
According to Moody’s report, “sustained focus on capital-generative health protection products, large amounts of capital securities issuances in 2024-2025 and disciplined asset-liability management will support insurers’ capitalisation”.
“The regulator’s phased approach to adjusting down the discount rate for insurance liabilities reduces the likelihood of a sharp decline in regulatory solvency ratios, similar to what occurred in 2024,” the report said.
But despite a long phase-in period of nine years, the rating agency expects that the 2027 implementation of a minimum core capital solvency ratio under the Korea Insurance Capital Standards (K-ICS) “will prompt insurers to proactively improve their core capital K-CIS ratios”.
“Some insurers within larger groups may do so through parental capital support, if conditions allow,” said the report.
“Most others will likely achieve this by reducing required capital through reinsurance arrangements and asset portfolio restructuring, rather than by issuing core capital securities, which typically carry higher funding costs and require sufficient dividend paying capacity.”
Profitability will come under pressure
Although product margins held up largely stable across lines in 2025 after a sharp decline in 2024, the agency pointed out that there are headwinds “as insurers expand coverage with limited pricing increases amid intense competition”.
“As the 20-month medical staff strike gradually wound down until its official end in October 2025, more policyholders began visiting hospitals, increasing claims payouts beyond expectations,” the report stated.
“Higher acquisition costs, notably through general agents, will add to underwriting expenses. Smaller insurers and those dependent on general agents face greater profitability pressure.”
On the other hand, the report also noted that while new money yields have stabilised in 2024-2025, they remained lower than previous levels.
“As a result, the overall investment yield will decline because new, lower-yield investments will replace maturing high-yield bonds, reducing interest income,” the report showed.
Additionally, the report highlighted that heightened market volatility from the Middle East conflict “will increase insurers’ foreign exchange hedging cost and reduce investment returns”.
Liquidity and asset-liability management will remain sound
“Ample short-term liquidity and stable lapse rates will underpin insurer’s liquidity,” the report stated.
“While insurers will face challenges in matching asset and liability durations if interest rates trend downwards, we expect rated insurers to remain disciplined in narrowing duration gaps by increasing exposure to long-dated bonds, using interest rate derivatives, such as bond forwards and offloading interest rate risks through reinsurance.”
Financial flexibility is stabilising
According to the report, large issuances of capital securities in the past two years have increased insurers’ financial leverage and interest burdens.
“The sector’s aggregate financial leverage ratio rose to 14% at end-September 2025 from 9.1% at end-2023,” the report showed.
“We expect rated insurers’ financial flexibility to remain stable over the next 12-18 months, supported by strengthened capital positions from securities issuances.”
The report also stated that this also “considers the regulator’s phased implementation of new capital rules”.
Regulatory scrutiny will remain high
“Apart from new capital rules, other major regulatory initiatives in 2026 include standardising actuarial assumptions under IFRS17 and implementing phased distribution reforms,” said the report.
“We view these initiatives credit positive, as standardising actuarial assumptions will improve the consistency and quality of capital assessment in the long run. Distribution reforms aim to enhance commission transparency.”