In the absence of large natural disasters in Korea, the property insurance market recorded a stable loss ratio of 41.8 percent in 2017. There were a few significant loss events during the year, but it did not translate into catastrophic losses. In terms of growth, the market performed poorly, with premium income decreasing by 9.2 percent to KRW 1,364 billion in 2017 compared to the previous year. This was mainly due to a soft market trend and rate decreases. By line of business, the fire insurance market declined by 16.3 percent to KRW 192 billion in premium income, while the comprehensive insurance market was down 8 percent to KRW 1,171.8 billion.
Korean Re also had a challenging year domestically but managed to perform relatively well in 2017. We reported a decrease of 0.4 percent to KRW 532 billion in overall domestic property premiums, but our premium income from comprehensive insurance increased slightly by 1.0 percent to KRW 384 billion as we continued to develop new business. We saw our book of fire insurance business shrink by 3.8 percent to KRW 148 billion due to an increase in retention by local primary insurers and the overall market contraction. As we focused on selective underwriting, our business results for domestic property business remained fairly stable.
The highly competitive reinsurance business environment is expected to continue into 2018. In response, we will keep rebalancing our domestic property business portfolio to maximize our profit potential. We will also remain focused on writing profitable accounts based on multi-faceted risk analysis and selective underwriting.
We continued to see a strong growth of our international property facultative business, with gross written premiums increasing by 24.7 percent to KRW 81.4 billion in 2017. This was driven by two main factors – an overall increase in line size per account, and a growth in new business involving power and energy sector risks.
A breakdown of our premium income by geography shows that Asia takes up the largest share, or 48.7 percent, of the total international property facultative business, followed by Europe (16.4 percent), the Americas (16.3 percent) and the Middle East (14.7 percent). There is no substantial difference in the overall composition compared to the prior year, but the portion of the Middle East decreased in the wake of our portfolio adjustment caused by a minor change in our underwriting guidelines.
In 2017, as part of our client support initiatives, we hosted a Technical Engineering Seminar for our key clients in Vietnam and Thailand to provide tailor-made risk management solutions and share our underwriting techniques with regard to power and petrochemical occupancies. We will seek to have more of our key clients be involved in this engagement by expanding our client support service to other regions.
For the coming year, ample alternative capital and strong competition in the global property reinsurance market are likely to limit the extent of market hardening following a record year of losses. In the face of intensifying competition, Korean Re will strive to tap into new markets, backed by its strong credit ratings, and will focus particularly on expanding our business in Mainland China and other emerging markets to ensure sustained growth and profitability of the company.
Natural catastrophe insured losses worldwide reached USD 134 billion in 2017 – the second-costliest ever just behind the record of USD 137 billion in 2011 1) . The record-breaking natural catastrophe events included Hurricanes Harvey, Irma and Maria in the United States and the Caribbean. These three hurricanes alone cost the global insurance industry USD 80 billion.
Consequently, the industry expected general rate increases that could make up for the massive losses. However, January 2018 renewals saw only a slowdown in market softening rather than hardening, as the market capacity remained mostly intact and competition in the reinsurance market was still intensive. Rates have moved up partly in certain lines and territories affected by the recent losses, especially in Europe and the United States. A widespread spike in pricing is not likely in the near future, although rate softening may be stalled to some extent.
Gross written premiums for our international treaty business were worth KRW 480.4 billion in 2017, representing a 2.8 percent rise from 2016. This increase came amid a delay in issuance of some treaty statements of accounts in China due to Chinese tax reforms and a reduction in our share on major Chinese treaties. A strong growth of our U.S. portfolio drove the overall increase of our book of international treaty business. East Asia’s share in our international treaty portfolio fell by 4 percentage points to 40 percent, but it still accounted for the largest portion, followed by the Middle East and Africa, including Turkey and Israel, at 21 percent and Europe at 20 percent. The Americas took up 19 percent, up 3 percentage points from a year earlier as we increased our U.S. book of business for portfolio diversification. Our annual premium income from the Americas rose by 26 percent in 2017.
This year, we will continue to implement a strategy to rebalance our global business portfolio. We will remain conservative in writing new proportional treaty businesses in catastrophe-prone regions, while endeavoring to expand business in Europe and the Americas in order to geographically diversify our international treaty portfolio. We will also secure our bargaining power by actively providing lead quotes for accounts in our target markets. As part of our effort to remain successfully profitable in the current harsh market conditions, we will write more of non-proportional treaties in selective regions.
1) Weather, Climate & Catastrophe Insight 2017 Annual Report, Aon Benfield