Gov’t Stake Cut: Impact on Seoul Guarantee Insurance

Seoul Guarantee Insurance (SGI) is set to maintain its dominant position in the market over the short to medium term, as per Fitch Ratings. However, the government’s plans may lead to a gradual reduction in its stake. SGI currently enjoys a strong capital position, with its solvency ratio under the Korean Insurance Capital Standard (K-ICS) showing an improvement. In the first half of 2024, it reached 445.4%, up from 437.3% in 2023, well above the regulatory minimum of 100%. This robust capital adequacy equips the company to handle potential economic and operational shocks effectively.

Nevertheless, SGI is not without its challenges. Fitch predicts a decline in underwriting profitability throughout 2024. High interest rates and slower economic growth have led to a surge in claims, which in turn has affected profitability. The combined ratio, a crucial measure of profitability, rose to 96.5% in the first half of 2024, compared to 81.6% in 2023 and 68.1% in 2022. Return on equity also dropped to 3.2% during the same period from 8.3% in 2023. Fitch does, however, expect a slow recovery in underwriting performance starting in 2025 as interest rates ease.

While Fitch anticipates SGI to hold onto its market leadership, it does face concentration risks. Over 95% of its exposure is tied to the domestic market. Despite this, government backing remains a significant factor in SGI’s financial profile. The Korea Deposit Insurance Corporation (KDIC) holds a 93.85% stake in the insurer, and Fitch believes that in case of need, government support would be forthcoming due to SGI’s important policy role.

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