South Korean life insurers’ combined net profit shrank 21.7 percent in the first quarter compared to a year earlier as they cut sales of saving-type insurance policies ahead of the introduction of a new accounting standard.

According to preliminary data released by the Financial Supervisory Service (FSS) on Wednesday, Korea’s 24 life insurance companies including eight foreign life insurers operating in the country earned a combined 1.23 trillion won ($1.14 billion) in net income during the first three months this year, down 21.7 percent from the same period last year.

Operating loss from insurance sales stretched 11 percent on year to 5.7 trillion won. Income from saving-type insurance sales slipped 23.6 percent on year to 8.6 trillion won while income from sales of protection-type insurance grew marginally by 2.0 percent to 10.3 trillion won in the first quarter from a year earlier. Payouts on insurance claims expanded 1.9 trillion won over the cited period.

Life insurance companies in Korea have been restructuring their sales portfolio by reducing the portion of saving-type insurance products such as post-retirement saving plan ahead of the introduction of International Financial Reporting Standards (IFRS) 17, which will take effect in 2021. Under the new accounting rule, insurance premium on saving-type products will be excluded from revenue, which in turn would make a life insurer’s bottom line appear weaker.

It is the first time since the first quarter 2011 for life insurers to earn less from saving-type insurance sales than protection-type insurance sales, said an FSS official.

In addition, insurance companies joined a state campaign for policyholders to collect insurance money they had forgotten to claim.

Their income from investments declined 1.0 percent on year to 6.0 trillion won in the first quarter as insurers sold off securities on rising in interest rates. The value of their investments waned by 156.0 billion won.

The combined non-operating income of the life insurers grew 25.6 percent on year to 1.3 trillion won thanks to higher commission incomes from variable life insurance sales. A variable life insurance is a permanent life insurance policy with an investment component, and related profit is booked as non-operating income under a special account in Korea.

By Kim Tae-sung and Cho Jeehyun

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