Coinsurance to alter Korean insurers' capital efforts

It would be more benefitting for the life segment.

Coinsurance will diversify measures to boost Korean insurers’ capital strength amidst low interest rates, but liabilities to be yielded need to be reasonably priced for it to be a satisfactory option for restructuring, reports Fitch Ratings.

The adoption of coinsurance would be generally positive to insurers’ credit quality, with it being more favourable towards the life segment which used to sell significant savings-type products with high guaranteed rates.

On the other hand, direct insurers have to carry the credit risk of reinsurers if coinsurance is arranged, the report said, as profitability could be compromised if the cost is too high relative to an insurer's surplus.

Therefore, coinsurance might not yet be attractive to major insurers that have enough capabilities to manage well their liabilities without it, Fitch noted.

Moreover, Korean financial regulatory authorities recently revised regulations on the risk-based capital (RBC) regime for insurers to pre-emptively manage their capitalisation in response to the introduction of IFRS17 and Korean Insurance Capital Standards, effective 2023.

Revisions include the permission to slash interest-rate risk in the RBC calculation through coinsurance, the report concluded.