Korean insurers' profitability bolstered by strong CSM release

Insurers saw a 46% increase in net profits, attributed to the adoption of IFRS17.

Fitch Ratings anticipates that Korean insurers will sustain profitability through ongoing growth in contractual service margin (CSM). 

The steady release of CSM, supported by strong underwriting performance, is expected to bolster profitability. 

In 2023, Korean insurers saw a 46% increase in net profits, attributed to the adoption of IFRS17 accounting standards and effective amortisation of CSM, driven by higher sales of protection-type products. 

However, Fitch does not foresee a repeat of this level of growth in 2024, as the accounting change effect diminishes.

Capital adequacy ratios under K-ICS improved to 232.2% by the end of 2023, despite stricter capital requirements. 

The impact of K-ICS adoption on insurers' capitalisation varied based on their risk profiles and capital structures. Looking ahead, Fitch highlights several key factors:

Insurers may face reduced capital due to tighter discount rates and phased recognition of transitional measures. However, growth in new business CSM is expected to partly mitigate this impact. Insurers with weaker capital positions might consider issuing supplementary capital or using reinsurance to strengthen their capital base.

Insurers are focusing on enhancing profitability by prioritising high CSM new business, particularly protection-type and long-term products. This strategic emphasis aims to optimise their insurance operations amidst evolving market conditions.