South Korea Insurance Report Q1 2008

This report differs from its predecessors in that it includes BMI's Insurance Business Environment Rating (IBER). The rating brings together a number of pieces of relevant quantitative data, together with BMI's Country Risk Rating (CRR). It is now much easier to consider the business environment for the insurance sector in any one country relative to the business environment for other industries in that country that are surveyed by BMI, and the business environment for the insurance sector in other countries.

South Korea's IBER is 71.3. Relative to other countries in Asia Pacific, it is a moderately attractive insurance market for foreign insurers. Within the region, South Korea stands out for the current size of the both the life and non-life segments, and the likely absolute growth of both. The economic outlook is troubling, with a general slowing of the economy likely. Government policies are likely to remain constant over the long term. However, the IBER is held back by the weakness of South Korea's regulatory framework and the lack of openness to foreign companies.

Over the forecast period, we anticipate that non-life premiums will grow by 4% annually in local currency terms and by 6% in US dollar terms. Life premiums are expected to increase by 5% annually in local currency terms and by 6% in US dollar terms. The key drivers of growth in the non-life segment in 2007- 2012 are the anticipated rise in nominal GDP from around US$963.98bn to US$1,203.35bn and an expected increase in non-life penetration from 3.77% of GDP to 4.00%. The key driver of growth in the life segment is the envisaged rise in life density from a miniscule US$1,181.51 per capita in 2007 to US$1,500 per capita in 2012. South Korea's total population will also grow from 48.14mn to 51.02mn during the forecast period.

The competitive landscape, in both the non-life and the life segment, is fragmented. Both segments are recently more open to participation by foreign groups. However past regulations and the dominance of local players remain formidable barriers to foreign companies.

South Korea is a large insurance market, with high potential returns. The economy has been growing rapidly and continued pressure on regulators makes it likely that it will become increasingly easier for foreign companies to enter the insurance market. However, the underdevelopment of the country's capital markets means that volatility in bond or equity markets will hit the South Korean giants harder than the foreign groups who are present in South Korea.