Strategy of Korean insurance companies against

low interest rates and population aging with

emphasis on developing insurance products

KOREAN REINSURANCE COMPANY

Kyunghak Rhee

Agenda

Introduction of Korean Re

Status of Korean Market

How to overcome Low Interests and Aging

Introduction of Korean Insurance products

Conclusion
2

I. Introduction of Korean Re
Introduction
Introduction
- 1963 : Established as Korean non-life reinsurance corporation (State run company)
- 1978 : Privatized & listed in the Korean stock market
- 2011 : A.M. Best A (Stable) in Feb. 2011
- 2013 : Top 9th reinsurer in the global reinsurance market
- 2014 : Standard & Poors A (Stable) in Oct. 2014
(Unit: USD Bil.)

Ranking

Organized Name

Gross premium

A.M. Best Rating

S&P
Rating

Munich Re (Germany)

38.3

A+

AA-

Swiss Re Group (Switzerland)

32.9

A+

AA-

Hannover Re Group (Germany)

19.2

A+

AA-

Lloyd's of London (UK)

15.6

A+

SCOR SE (France)

14.1

A+

Berkshire Hathaway (USA)

12.8

A++

AA+

RGA Inc. (USA)

8.6

A+

AA-

China Reinsurance Group

7.9

A+

Korean Re (South Korea)

5.6

10

Partner Re (Bermuda)

5.6

A+

A+

Source : S&P, A.M. Best (2013)

3

I. Introduction of Korean Re
RBC, Financial Highlights and M/S
Solvency Margin Ratio (RBC)
FY 2014

FY 2013

FY 2012

FY 2011

FY 2010

236.2%

206.3%

208.7%

203.8%

217.7%

Minimum standards : 100%

- Korean Re successfully issued subordinated capital securities worth USD 200 mil.
in Oct. 2014 and further ensured its capital strength

Financial Highlights
(Unit: USD Mil.)

FY 2014

FY 2013(9m)

FY 2012

5,686.8

4,125.7

5,012.3

110.4

111.9

125.3

Gross Premium
Net income (after tax)

FY 2012: Apr 1 Mar 31 (@1,126.33)

FY 2013: Apr 1 Dec 31 (9 months, @1,106.81)
FY 2014: Jan 1 Dec 31 (@1,053.22)

Market Share (FY 2014)

(Unit: USD Mil.)

Non-Life

Life

Total

Korean Reins. Mkt.

6,122

1,299

7,421

Domestic Prem.

3,831

556

4,387

Korean Re M/S

62.6%

42.8%

59.1%

Excluding Cooperatives but including NH

- Korean Re has a strong M/S of around 60% in domestic market

II. Status of Korean Market

Ranking of life insurance market
Korean is the 8th largest insurance market in the world
(Unit : USD Bil.)

Ranking
(Previous Year)

Country

1(1)

U.S.A

528

752

1,280

2(2)

JAPAN

373

107

480

3(3)

ENGLAND

235

116

351

7(7)

GERMANY

118

77

195

8(8)

KOREA

102

58

160

9(9)

TAIWAN

79

46

125

10(10)

AUSTRALIA

56

40

96

2,655

1,555

Life

Non-Life

Total

Total

4,778
5

II. Status of Korean Market

Growth of insurance market
The Korean insurance industry maintained its stable growth momentum

Life gross premiums

Hundreds

Unit: USD Mil.

Non-life gross premiums

Effects of changing fiscal year :

2013(9months) (2013.4~2013.12)

250,000

50%
Growth rates
41.2%

200,000

40%
30%

22.9%
150,000

13.3%
5.9%
0.0%

7.2%

13.6%
10.2%

3.1%

8.8%

20%

12.0% 10.6%

10%
5.5%
0%

1.8%

-3.5%

100,000

-10%
-20%

50,000
-28.7%
0

-30%
-40%

2000

2002

2004

2006

2008

2010

2012

2014
6

II. Status of Korean Market

Status of Low Interest Rate
FSS Standard rate of interest: 7.50% in 2000 3.25% in 2015
Korean treasury bond rates (3 years) : 8.3% in 2000 1.6% in 2015
Investment Return : 6.3% in 2000 4.1% in 2015
Problems
Unit: USD Mil.
1. Standard
Increase
in
Premium
30,000
rate of interest
sales decline
6.3%
10.0%
6.2%
Interest rate for Korea
25,000
2. treasury
Increase
in
insurance
liability
bond(3 years)
5.5%
reserve
8.3%
20,000
8.0%
7.50%
3. Return on investment earning
4.5%
15,000
deterioration
6.0%
Decrease in value of Insurance
5.00%
10,000
4.8%
company
4.00%
4.0%

4.6%

3.75%

4.0%

3.75%
3.25%

3.1%

2.0%

7.0%

6.0%

5.0%
4.4%

1.0%

FY1999 FY2002 FY2005 FY2008 FY2011 FY2014

0.0%

(5,000)

0.0%

2003

2006

2009

2012

2015

3.0%

2.0%

5,000

1.6%
2000

4.1%4.0%

Investment Income

Operating Profit from business

Net Income

Investment Return
7

II. Status of Korean Market

Transition to Ageing and Aged Society:
International Comparison
Korea has shown rapid aging rate among OECD countries
Year Reached

Years Taken

20%(Hyper-aged) 7%14%

14%20%

7% (Aging)

14%(Aged)

Korea

2000

2019

2026

19

Taiwan

1993

2018

2026

25

Japan

1970

1994

2006

24

12

U.K.

1929

1976

2020

47

44

U.S.A.

1949

2014

2030

65

16

Germany

1932

1972

2010

40

38

France

1864

1979

2019

115

40
8

II. Status of Korean Market

Low-Birth Rate and Rapid Population Aging

Rapid Increase in Aging rate: 20% in 2026 34.9% in 2050
Rapid Decrease in Birth rate: 4.53 persons in 1970 1.23 persons in 2010
(cf. Average of OECD Countries: 1.71 persons)

<People aged 65 and over>

<Total Birth Rate>

(Unit: %)

(Unit: No. of persons)

40

34.9

5.00

4.53

4.00

30

3.00

20

19.4
11.1
13

10
3.3
3.9

2.00

1.57

1.23

1.15

1.00

7.3

0.00
1970

1990

2010

2025

Source: Axco, Insurance Market Report, Korea/ Japan

1970

1990

2004

2008

Source: OECD Factbook 2013, Fertility

II. Status of Korean Market

Age structure of Korean Population
Korea is an aging society.
The combined effects of a longer lifespan and falling birthrates has resulted
in the population aging at a very fast rate.
100%

2.9

3.1

3.1

3.4

3.8

4.3

5.1

5.9

6.9

10.7

12.6

15.1

90%

23.1
30.1

34.4

80%
70%

54.8

53.1

54.4

58

1.
62.2

60%
50%

2.
3.
4.

40%
30%
20%

42.3

43.8

42.5

38.6

34

Problems
Decrease in the middle age
65.6
69.3
population(Target
insurance
70.7
71.7
71.4
customers)
72.1
72.1
Decrease in fertility rate
Increase in longevity risk
Increase in medical expense
Prospect for insurance market
decline
30.2

25.6

10%

23.4

21.1

19.6

17.2

71
64.6
58.4

55.1

15.3

13.9

12.4

11.5

10.5

2015

2020

2030

2040

2050

0%
1960

1965

1970

1975

1980

1985

Age 0~14
0-14
(A)

1990

1995

2000

Age 15~64
15-64(B)

2005

2010

65
Age (C)
65+

10

III. How to overcome Low Interests and Aging

Korean life Insurer's Efforts

The effect of low interest rates and aging population has changed the product
development paradigm and the investment strategies.

Low
Interest
Rate

Population

Aging

Product portfolio adjustment

(Increase in portion of investment-type
products and protection-type products)

Develop products that meets elderly

needs (Death Insurance living
benefit)

New strategies to reduce cost

Relaxation U/W process for the elderly

Alternative investment

11

III. How to overcome Low Interests and Aging

Product strategy_1
Increasing : Protection / Variable / Pension
Decreasing : Saving
Unit: USD Mil.
140,000

Effects of changing fiscal year :

2013(9months) (2013.4~2013.12)

120,000
100,000
80,000
60,000
40,000
20,000
2000

2001

2002

2003

Protection

2004

Saving

2005

2006

Pension

2007

2008

Retirement

2009

Variable

2010

2011

2012

2013

2014

Others

12

III. How to overcome Low Interests and Aging

Product strategy_2
Burden of guaranteeing fixed rate
Needs for protection policies and floating rate annuity

Protection insurance
Increasing trend of selling protection policies compared to saving insurance
- Sufficient safety margin for risk rate

Focus on the marketability of protection insurance

Variable annuity
Fixed rate annuities Increasing burden on insurance companies
Transferring a part of market risk to the insured

13

III. How to overcome Low Interests and Aging

Investment strategy_1
Gradual increase of property investment and decline of expense
Unit: USD 1,000

20,000

30.0%

18,000
25.0%

16,000
14,000

20.0%

12,000
10,000

15.0%

8,000
10.0%

6,000
4,000

5.0%

2,000
-

0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Real Estate

Investment Return

Expense Ratio

14

III. How to overcome Low Interests and Aging

Investment strategy_2
Continuous increase of foreign investment securities
- 44.4% increase in 2014
(portion : 6.3% of total securities, 4.7% of invested assets, 3.7% of total
assets)

Unit: USD Mil.

Foreign Investment Securities
80%

40,000
36,128

75.2%

35,000

60%

Growth Rates

30,000
24,368

19.9%

25,000

20,059
20,000

0.0%

25,187
22,151

21.5%

16,727

21,319

44.4%

40%
20%

22,606

6.0%

3.4%

0%

10.1%
0.6%

-3.8%

15,000
10,000

24,879

25,026

-20%

-12.1%
9,550

-40%
-60%

5,000

-80%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014
15

III. How to overcome Low Interests and Aging

Product strategy_3
Death Insurance Living benefits

Annuity
Both the elderly and the young
: Providing for old age Enlargement of demand for annuity
Exposure to longevity risk Mix of death and annuity

Health Insurance
Needs for health insurance which is acceptable for the substandard
: Silver diseases insurance, Simplified Issue(SI), LTC, etc.
The lack of experience statistics
We need to build a proper national database in cooperation with government
16

III. How to overcome Low Interests and Aging

Channel strategy
Insurance environment deterioration Seeking for new strategy

Market segmentation
Grouping Reflecting the Group profitability and retention in the target
price determined through predictive analysis
Find and predict future outcomes relationships between variables through
statistical models based on observed data

Mitigation
of Financial
supervisory
regulations(in
progress)
Areas
of application:
U / W cost,
Sales strategy,
Claim payment
management
etc.
1 Mitigation of regulations for rates
Introduction
channel
- Abolition of
of new
adjust
limit(25%) for risk rates
- Abolitionof
ofon-line,
FSS standard
of interest
Activation
Mobile rate
channel
expense reduction
of suitable
productsfor
the
Targeting
Mitigation of product
regulations
elderly a niche market
2 Development
- Abolition of
noticeproduct
for insurance
product
Deregulation
onprior
insurance
development
- Offer product standards for the elderly / Expend autonomy
Encouraging insurance companies to develop various products
17

III. How to overcome Low Interests and Aging

Customer strategy
Elderly insured Quickness and Simplification

Simple U/W
Insurance channel tailored for the elderly
Insurance companies need to contact with old age customers directly
Activation of face-to-face channel

Operating multi distribution channel

: Cooperation between face-to-face channel and non face-to-face channel
(operate 24 hours a day)
The system which allows a designated person to claim for insurance benefits
on behalf of the insured (the elderly)

18

III. How to overcome Low Interests and Aging

Results of the strategies
Korean insures have effectively responded to low interest rate and aging
population
Market penetration is still increased
$30,000

16.0%
14.0%

$25,000
12.0%
$20,000
10.0%
$15,000

8.0%
6.0%

$10,000
4.0%
$5,000
2.0%
$-

0.0%
1985

1990

1995

GDP per capita

2000

2005

% of age 65+

2010

2011

Interest rate

2012

2013

2014

2015

Penetration Rate

19

. Introduction of Korean Insurance Products

Development of products for the elderly

2004 ~ 2008

Long-term care
Severe Dementia

Launch of
products for
the elderly

2009 ~ 2012

2012 ~ 2013

2014

2015 ~

New LTC
Dementia Only

Senior Cancer

Simplified Issue
Medical Indemnity

Silver Disease
SI Cancer

In conjunction
with national
institutions
Severe/Mild
Dementia

New Markets
for
Cancer

Induce contract
for the elderly

CI for
the elderly

20

. Introduction of Korean Insurance Products

VUL(against low interest rate)

VUL(Variable universal life insurance)

Ability to invest in separate accounts whose values vary (invested in stock and/or bond)
Policyholders have flexibility in making premium payments
Proper products for households whose income and expense levels fluctuate
Insurers have less responsibility for market risk

Less
impacted
by interest
rates
Funds investment
performance is
directly reflected in
the policy value

Various
functions

Step-up
Guarantee annually increased the
account value in the case of
favorable market performance.
21

. Introduction of Korean Insurance Products

Convertible whole life(against low rates)

Whole life convertible to annuity

- When an insured dies, benefits for death and survivors annuity can be provided
- After an insured retires, annuity can be provided
Securing retirement wealth
- Life table at the time of application will be used when annuity payment is calculated
Annuity payment would be high compared to WL

Cover
death and
later life
offer "death benefits"
as well as annuities

Withdrawal
cash value

Fixed amount is paid when

policy holders are alive
until specific age
22

. Introduction of Korean Insurance Products

Low lapse rate whole life(against low rates)

Low Lapse Rate Whole Life

- lower premium using lapse assumption. Whole life with low surrender value If the policy is lapsed
during premium payment period.

Moderate
Premium

Greater compensation
for the same cost

Cash
Value

After premium
payment period,
Higher surrender value

23

. Introduction of Korean Insurance Products

Preferred Risk (against low rates)

Preferred risk insurance is a term or whole life policy with discounted premiums based on an
applicants application information, family and personal medical history, and life style.
Product development is underway

Price competitiveness
Stabilize loss ratio through retaining preferred customer
We can give better service for the same price

Loss ratio stabilization

Stabilize loss ratio through retaining preferred customer
Increasing profit

World market trend

Follow global trends like non-smoking efforts
Mortality system preparation in accordance with the world market
24

. Introduction of Korean Insurance Products

Preferred Risk (against low rates)

Definition of Groups
Non-Smoker
Standard

Super
Preferred

Preferred

Smoker
Standard

Preferred

Standard

Non-smoking
period

No History

Cholesterol

< 190

< 200

< 240

< 200

< 240

HDL

50(m)
60(f)

45(m)
55(f)

40(m)
50(f)

45(m)
55(f)

40(m)
50(f)

Non-smoking over 1 year

Smoking

Blood
pressure

systolic<120

systolic<130

systolic<140

systolic<130

systolic<140

diastolic<80

diastolic<85

diastolic<90

diastolic<85

diastolic<90

BMI

20BMI<23.5

18.5BMI<25

Diabetes

NO

NO

18.5BMI<25
NO

NO

NO

- Excluding family history, drug use, etc (Insert application form )

- Excluding job, dangerous hobby, previous illness (including application form)
- Domestic preferred standard : stop smoking for 1 year, systolic blood pressure 110~139, BMI 20~27.9
25

. Introduction of Korean Insurance Products

LTC/Dementia(against aging)

LTC(Long-Term Care)
a type of insurance developed specially to cover the costs of nursing homes, assisted living,
home health care and other long-term care services. New LTC products are connected with public
long-term care insurance

Cash benefit type, no reimbursement benefit

Connected with Public Long-term Care Insurance(PLTCI)

PLTCI : The elderly aged 65 yr and older or persons younger than 65 who have geriatric
diseases are eligible for benefits through an assessment process certifying the presence of
Increased
disability in physical and cognitive functioning. LTCI benefits include institutional as well as
Medical
community-based services. The level of certification determines the amount of services covered
Expense
and the fee for each service.

Cover LTC and Dementia based on CDR rating

The level of Dementia is determined by Expanded Clinical Dementia Rating (CDR)
Severe Dementia : Higher than CDR 3
Light Dementia : CDR 1 and 2
26

. Introduction of Korean Insurance Products

Senior Cancer(against aging)

Senior Cancer
Tailored product for over 65 years who cannot be accepted for general cancer product

Insurance penetration rate 8.2% niche market

Entrance age 55 yrs~ / Insured term : renewal up to 100
< Insurance penetration rate>
37.8%

91.8%

8.2%

62.2%
Increased
Medical
Below 65 yrs : 6 out of 10 insured
Expense
Source : FSS, the end of 2009

Above 65 yrs : 1 out of 10 insured

Extension of acceptable insured for cancer product

- Standard insured
- Substandard insured(Hypertension pts or diabetes pts)
An insured could be declined because of other diseases
27

. Introduction of Korean Insurance Products

Silver 3 disease (against aging)

Silver 3 diseases insurance

- Acceptable for diabetes or hypertension patients!
- Coverage focused on three diseases the leading causes of death in Korea
- First Cancer, Second Acute Myocardial infarction, Third Cerebral hemorrhage
Classification

Standard 3 diseases insurance

Silver 3 diseases insurance

Entrance age

15~60 years old

61~75 years old

Insured term

80 years or 100 years

100 years

Renewal

10 yr renewal

10 yr renewal

U/W

Significance

Pricing

Hypertension or diabetes patients would be

Without medical U/W for hypertension or
rejected
diabetes
- Only for standard
- Simplified Issue
Some of life insurance companies attach the
KR first developed the product
benefits as base or rider to health insurance
in Korea
products.
Hazard Ratios for 3 main diseases were
used to calculate the rate
28

. Introduction of Korean Insurance Products

Simplified issue insurance(against aging)

Simplified issue insurance is a term or whole life policy that can be issued with additional
premiums by asking 3~4 medical questions to cover mild cases of disease for the elderly.
Recently we developed Hospitalization, Surgery, Cancer Diagnosis benefit using Simplified U/W
guideline.

Simple
U/W

Elderly

Issue by asking
three simple
questions

Insure mild case or

elderly older than 50

Minimize
Risk
Minimize risks
compared with
GI(Guaranteed Issue)
29

. Conclusion

Company-wide responds

Low
Interest
Rate

Expense
Reduction

Worsening
profitability

Diversify
Investment

Develop
Protection
Products

Aging

30

Q&A
khrhee@koreanre.co.kr
31

Thank you

khrhee@koreanre.co.kr
32