Coming out of the storm

Economic indicators show signs of recovery that will spur insurance growth in South Korea.

It was just after the first anniversary of the historic bankruptcy of Lehman Brothers that the 2nd Global Insurance Symposium 2009 took place in Seoul, South Korea, attracting over 200 participants to exchange views on the industry’s new direction and growth strategy.  Mr Clarence Wong, Swiss Re’s Chief Economist Asia, was among the speakers at this high-level event organised by Korea’s Ilbo ( Financial News) on 29 September 2009.  

Kicking off by giving a bird’s eye review of the global insurance market, Mr Wong described how globally the life insurance sector was particularly hard hit by the financial crisis, as life premiums declined in 2008-09 mainly due to falling demand for investment-linked products and life insurers reported sharp drops in capital and solvency. 

Global primary in-force business shrank by 2.3% on an inflation-adjusted basis, driven by a 4.3% fall in the industrialized countries.  In the emerging markets, however, premiums continued to grow although new business slowed sharply in many markets.   

The non-life sector fared better globally.  While non-life premium growth was subdued due to the economic crisis despite support by front-loading of infrastructure projects, capital and solvency of non-life insurers was less affected.  Non-life underwriting continued to post solid results in 2008, with combined ratios staying below 100%.  

Asia’s market outlook remains positive

Moving on to Asia, Mr Wong pointed out that recessions in major Asian economies and slowing growth in China and India have dampened insurance business growth.  In particular, equity market slumps have reduced consumer appetite for investment-linked products and bancassurance is particularly affected due to reduced single-premium sales.  Some insurers are shifting their focus to protection products.  

On the other hand, government-sponsored infrastructure projects in some emerging Asian markets (e.g. China and India) could fuel property and casualty insurance demand.

Mr Wong said, “The medium to long term growth outlook in Asia remains favourable.  As insurance capital declined in most Asian markets, insurers’ capital management is the key to the recovery road ahead.  Alongside a regulatory trend of strengthening solvency supervision and mounting pressure on capital from post-crisis business growth, this will favour the use of reinsurance.”  

South Korea - the worst is over

Turning to South Korea, Mr Wong highlighted various economic indicators showed welcoming signs of recovery:  GDP declined at a slower rate; manufacturing production picked up; business confidence resumed; and the stock market index (KOSPI) showed a v-shaped rebound and 12-month breakeven.  

Mr Wong concluded, “The economic recovery will support insurance growth in South Korea that is expected to be in line with OECD averages in the longer term.”  

September 2009

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