S&P Releases Report on Korean Non-Life Sector

July 2, 2003

The outlook on the financial strength of the Korean non-life insurance sector remains stable, backed by enhanced underwriting performance and the sector’s ongoing efforts to manage risk, Standard and Poor’s Ratings Services said in a new report.

Positive factors are offset by a sluggish investment environment and continued drop in interest rates, the report said.

“The volatile stock market and low interest rate environment have motivated insurers to control underwriting risks in an effort to sustain reasonable margins,” said Standard & Poor’s credit analyst Young Il Choi, the author of the report. “Softening premium rates on auto insurance and long-term products, however, will likely press insurers’ profitability,” he said.

Despite a loss in momentum in direct-premium growth in fiscal 2002 (ended March 31, 2003), the continuing flight-to-quality by Korean consumers helped the four largest insurers strengthen their market shares. “Insurers with relatively weak brand recognition, however, struggled with declining revenues and market shares, and some players may face regulatory intervention,” Choi said.

Legislation aimed at deregulating the non-life market has reduced the minimum capital necessary to launch monoline insurance products, and more competitors targeting niche products are expected to enter the market.

Deregulation has also given insurers greater autonomy in shifting funds to particular asset types. “The increasing investment in derivatives and overseas securities, although relatively small at present, will subject the sector to unfamiliar country-specific and product-specific risks,” Choi added.

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