South Korea – at a crossroads

South Korea’s life insurance market is undergoing rapid transformation, driven by macroeconomic pressures, regulatory change and shifting demographics – prompting insurers to sharpen their asset-liability strategies using advanced modelling tools.

South Korea’s life insurance market is undergoing a period of significant flux, driven by a range of factors, including macroeconomic drivers, demographic changes, and regulatory shifts. After experiencing a 9.2% decline in direct written premiums (DWP) in 2023, the market is projected to continue the recovery it saw in 2024 throughout 2025, as improved economic factors, and an ageing population combine to create better conditions for the market. Looking even further ahead, the South Korean life insurance market is expected to grow at a compound annual growth rate (CAGR) of 3.1% from KRW182.7 trillion (US$139.8 billion) in 2025 to KRW206.2 trillion (US$157.9 billion) in 2029, according to forecasts from GlobalData. Pension insurance is anticipated to make up the largest portion, accounting for 39.7% of DWP in 2024, with a CAGR of 4.7% from 2025 to 2029. Whole life insurance and endowment insurance are also expected to grow, albeit at slower rates.

A similar prognosis for the market can be seen in Fitch Ratings’ recent APAC Insurance Outlook 2025. It anticipates that South Korean insurers will maintain relatively sound earnings performances in the near term, primarily due to a continued focus on protection-type long-term insurance business, which generally yields better contractual service margins (CSM). At the same time, Fitch noted that the adoption of IFRS 17 and IFRS 9 accounting standards could increase volatility in investment returns. It also forecasts that insurers will be looking to adopt more proactive asset allocation strategies to address duration gaps under the Korean Insurance Capital Standard (K-ICS).

K-ICS places significant emphasis on precise asset-liability management (ALM) and matching practices, requiring carriers to align their asset and liability profiles closely to manage risks effectively and ensure solvency under the new framework. Under K-ICS, insurers are required to calculate their solvency capital requirements using a Value-at-Risk (VaR) approach at a 99.5% confidence level. This involves assessing potential losses over a one-year period, considering market risk, credit risk and other insurance-specific risks.

In its Outlook, Fitch allocated Korean life and non-life insurers a stable rating for 2025. At the same time, the ratings agency noted the potential negative impact from a gradual escalation in the burden of reserving, onerous contract expense management, and lower investment yields from lower interest rates. The agency believes that efforts to reduce volatility in the market moving forward may include shifting asset recognition from fair value through profit and loss to fair value through other comprehensive income, adding that stable underwriting performance and a steady release of CSM are expected to continue supporting profitability.

These regulatory pressures are increasingly shaping strategic and operational responses among insurers. Reflecting this shift among South Korean insurers to proactively manage asset-liability duration gaps, RNA Analytics has observed a notable rise in RFIs and RFPs from the market – further underlining the emphasis on enhancing ALM capabilities. Against this backdrop, a dynamic approach to asset allocation is vital.

Carriers must ensure that their asset portfolios are flexible enough to respond quickly to shifts in liabilities. Regular stress testing is an indispensable component here. Our work with clients tells us that through detailed scenario analysis, insurers can better understand how their portfolios will perform under a variety of market conditions – from interest rate changes to economic shocks.

In supporting robust ALM under K-ICS, insurers are increasingly integrating automated risk dashboards, enhanced governance protocols for model risk, and real-time solvency tracking into their workflows.

Actuaries and risk managers must be able to simulate increasingly important regulatory-related shocks, considering the domestic, regional, and global financial environments. These shocks include long-term negative interest rates and domestic stock market volatility. Therefore, the ability to analyse the impact of various asset allocation strategies based on stochastic modeling techniques is becoming more crucial. Stochastic modeling capabilities are particularly effective in improving both the accuracy and robustness of liability estimation.

To address these changes in Korea, RNA is providing enhanced ESG and modeling tools. The Numerix ESG tool captures the dynamic interaction between macroeconomic factors and market variables, offering a detailed and forward-looking view of economic conditions. This allows for the efficient analysis of various asset allocation strategies.

Additionally, RNA offers R3S, a flexible and powerful cash flow engine. R3S enables more precise calculations by fully interacting with assets and liabilities based on the company’s behaviour. Its robust performance allows for stochastic simulations and various sensitivity analyses.

As South Korea’s life insurance market continues to navigate a landscape shaped by macroeconomic headwinds, demographic shifts and regulatory transformation, success will hinge on the market’s ability to respond dynamically, through smarter asset-liability strategies and stronger modelling capabilities.

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