Tough future for life insurers in South Korea, Thailand and China

By Ranamita Chakraborty

Considering the impact of the coronavirus pandemic on the insurance market, Fitch Ratings expects life insurers in three major Asian markets – South Korea, China and Thailand – to report significant losses and muted growth.

According to individual market reports published by the credit ratings agency recently, the coronavirus pandemic could lead to a continuous decline in earnings of Korean life insurers in 2020, major vulnerabilities and downside risks for Chinese life insurers and a thinner capital position for Thai life insurers over the next 12-18 months.

South Korea

For life insurers in South Korea, increased guaranteed reserves due to the drop in stock prices has enlarged insurance business losses despite the higher investment income.

Fitch expects alternative investments – one of the major ‘risky assets’ – to remain attractive to Korean insurers in this constantly low-interest-rate environment. Concomitantly, insurers’ potentially higher investment risk arising from the financial market volatility may extend to financial performance risk.

Meanwhile, the recent base-rate cut by the Bank of Korea also underscores the continued challenges facing life insurers that are burdened by negative spreads.

Therefore, the lower interest rate is projected to affect capitalisation but this burden on capital can be partly reduced once co-insurance is introduced as it allows the transfer of risks to reinsurers.


Fitch sees Chinese life insurers as being more vulnerable to deterioration in risk-based capitalisation due to increased capital-market volatilities.

This is attributed to the fact that these insurers face greater exposure to equities and equity-type non-standard assets potentially amid low-interest conditions – which adds to pressure on regulatory solvency.

A weakening economy and a more challenging operating environment also underpin Fitch’s lower premium growth expectations for Chinese life insurers in 2020.

While the country reports a new business slowdown due to reduced face-to-face interaction with customers, the demand for health insurance is still likely to rise due to the growing public awareness of the importance of insurance protection.

However, profitability will be under pressure as a result of reinvestment risk from a lower recurring yield despite pandemic-related medical claims being manageable. Concurrently, disrupted sales activities is affecting the life industry’s new business value generation.

Nonetheless, Fitch anticipates that the fundamental financial profile of larger insurers will normalise after the pandemic runs its course.


Domestic life insurers in Thailand could potentially face valuation losses from the drawdown of their investment assets’ market values and further subdued investment yields, said Fitch.

Additionally, a significant drop in the country’s stock market index over the past few months has highlighted the increased downside risk to the insurers’ investment portfolios and credit profiles during an irregular situation.

Fitch views Thai life insurers as remaining reasonably cautious on their investment-management decisions, as indicated by their main investment assets being in government and high-quality corporate bonds.

In addition, the industry has maintained sound capitalisation, as evident from the average risk-based capital adequacy ratio of 361% in 2019 well above the 140% regulatory minimum level, which should partly mitigate the risks from deteriorated earning performance and possible claims.

Moreover, the growth of life insurance premium written in Thailand has been muted in 2020, according to Fitch’s expectation which is line with that of the Thai Life Assurance Association.

While rising demand for health-related insurance products will continue to drive premium growth, it is unlikely to offset the drop in new premiums from traditional products such as savings-type insurance plans.

Asia Insurance Review

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