South Korea mandates liability cover under new data, crypto regulations: Korean Re
April 25 2024 by Kristina Shperlik
The South Korean insurance market is likely to benefit from the 2024 regulatory changes expanding requirements for liability protection in case of personal information leaks and virtual assets accidents mentioned in Korean Re’s latest market overview.
Virtual asset service providers in South Korea will be required to buy liability protection from insurers or cooperative associations or cover liabilities from hacking, system failures and similar accidents as the Act on the Protection of Virtual Asset Users by the Financial Services Commission (FSC) becomes effective July 2024.
80% or more of the users’ virtual assets will have to be stored in cold (offline) wallets, and the insurance coverage limit or the provision amount will have to be at least 5% of the assets stored in hot (online) wallets.
Personal information controllers such as companies and hospitals will now have to purchase liability insurance to compensate personal information leak losses or set aside an appropriate provision due to March 2024’s FSC regulation.
The regulator is planning to revise the criteria for the necessary sum insured and increase the penalty while promoting the initiative for compulsory insurance as companies tend to prefer provisioning over insurance.
Meanwhile, FSC’s last year promise to ease regulatory challenges for insurers’ overseas presence and business expansion by allowing representative offices to conduct business activities within the limits permitted by local laws to benefit from the advantages of local systems could stimulate the overseas expansion of Korean carriers.
Many Korean carriers have been looking to set up or expand their overseas presence as domestic market opportunities remain limited. DB Insurance and Samsung have earlier announced their plans to expand their overseas presence in 2024.
Another notable change is an improved solvency of the Korean insurance industry at the end of the third quarter of 2023 compared to the second quarter of the year with the average K-ICS ratio of non-life insurers increasing by 1.1% to 223.8% after the newly implemented Korean Insurance Capital Standards K-ICS.
This is largely because of the available capital increase by KRW2.2 trillion to KRW261.7 trillion quarter-on-quarter, according to the FSC data.
The increase in available capital was driven by a rise of KRW1.1 trillion in adjustment reserves from new contract inflows and a higher 10-year treasury yield (3.68% as of June-end 2023 compared to 4.03% as of September-end 2023) that lowered the value of insurance liabilities and increased the accumulated other comprehensive income by KRW1.8 trillion.
The capital strength of Korean insurers bottomed out in the second half of 2022 and is on an upward trend. Insurers have been taking various measures such as entering coinsurance deals with reinsurers to ease their capital requirements or increasing available capital to bolster their RBC ratios.
After transitional measures, the K-ICS ratio of the insurance industry stood at 224.2% in late September 2023, which is at a stable level.
2023 nat cat review
South Korea’s summer 2023 heavy rain caused KRW751.3 billion (US$554.2 million) of property damage and led to 47 deaths, according to Korean Re.
The rains flooded 2,284 homes and 2,069 small businesses and damaged 7,470 public facilities including roads and bridges with the hardest-hit provinces being Chungcheong and North Gyeongsang.
The precipitation for summer 2023 was the fifth highest since 1973, and the rainy season brought in a total accumulated precipitation of 641.4 mm, the third highest after 704 mm in 2006 and 701.4 mm in 2020.
Typhoon Khanun, reportedly the seventh wettest typhoon in history, made landfall on the Korean peninsula in August 2023 and caused two deaths and KRW55.8 billion in property damage. The precipitation per day was 362mm, marking the tenth heaviest rainfall since records began.
Following the events, the South Korean government invested KRW1.8 trillion to rebuild public facilities and prevent future losses.
The average nat cat cost damage per event is estimated at KRW2 trillion, according to Korean Re.
Casualty losses
Total casualty loss amounted to KRW23.2 billion in 2023 (up to September) and six accidents, including KRW6.5 billion of general liability and KRW16.7 of finpro liability losses. In 2022, the market saw KRW28.2 billion worth casualty losses and 13 accidents, based on Korean Re contracts numbers.
In the last decade, the Korean market experienced 189 large insured losses equal to or exceeding KRW1 billion for general and finpro liability insurance. The total amount of losses per year averaged KRW76.8 billion with the average number of claims per year at 18.9 and the average loss amount per claim at KRW4.1 billion.
Commercial and product liability accounted for more than half of the total accidents within ten years and 82% of the total loss amount with KRW170 billion for commercial general liability, KRW161.7 billion for product liability and KRW154.2 billion for product recall. The average loss amount per accident for product recall was the highest amid all classes with KRW25.7 billion losses, followed by package (general liability) with KRW4.2 billion loss.
Korean Re FY 2023 results
The reinsurer reported KRW287.5 billion in net income for the financial year 2023 (FY 2023), with an operating income of KRW365.2 billion.
Property, marine and motor lines improved their performance, mitigating negative effects from Turkey earthquake and Hankook Tire fire losses.
The reinsurer’s revenue saw a 15.5% decrease to KRW6.86 trillion in 2023 compared to KRW8.11 trillion in 2022, explained by a reduction in gross written premiums (GWP) from cuts of some poorly performing long-term insurance contracts and adoption of IFRS 9 and IFRS 17 reporting standards.
Insurance revenue for domestic P&C was at KRW2.2 trillion with motor generating KRW373.2 billion, comprehensive insurance including crop&livestock – KRW354.1 billion, and marine – KRW284.4 billion. Overseas non-life insurance revenue was at KRW1.54 trillion.
The reinsurance revenue stood at KRW788.1 billion for domestic non-life business and at KRW216.6 billion for overseas P&C business. For domestic reinsurance, motor accounted for KRW 106.6 billion, engineering – for KRW102 billion, fire – for KRW71.8 billion.
Korean Re’s GWP decreased 13.8% to KRW8.4 trillion in 2023. Domestic commercial lines premiums decreased by 1.3% due to portfolio modification involving underperforming businesses (i.e., cellphones and personal accidents) reduction. GWP for domestic personal lines of business declined by 29.8%, mostly because of the clean-cut of low-margin long-term bulk treaties worth KRW1.5 trillion.
However, Korean Re increased its overseas business proportion with a 7% increase in foreign premiums, a trend noted in four Korea’s major insurers’ results.
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