[THE INVESTOR] Korean insurance companies’ financial status and profitability may take a blow following the industry-wide restructuring of shipbuilding and shipping sectors as corporate debts extended by insurers are on the rise, according to a local think tank’s report.

“The size of corporate liabilities extended by insurance companies is only one-twelfth of banks’ lending but credit risks that they are taking can be relatively bigger,” said Jeon Yong-sik, a researcher at Korea Insurance Research Institute. 

He said that the firms that borrowed money from insurance companies are more likely to be those who found it difficult to get loans from banks or failed to extend the maturity for their existing loans.

According to KIRI, insurance firms’ lending to businesses stood at 65 trillion won (US$ 55.7 billion) -- 41.9 trillion won by life insurers and 23.4 trillion won by nonlife insurance firms -- as of the end of last year. The figure has been growing since 2012, the think tank said.

“Given that the local banks’ bad debt ratio accounted for 4.07 percent of total lending in the first quarter of 2016, insures’ nonperforming rate for loans to large companies may be higher,” he said.

The growth rate for premiums on the nonlife insurance policies has decreased since 2012 when shipbuilding and shipping industries started to struggle with an output slump.

If the restructuring process is drawn out, local insurers’ financial health will be dampened by weak consumer spending.

“Delays in production activities and profitability recovery of the companies undergoing structural revamps can lead to a decline in investment and employment and it can extend to a drop in insurance premiums,” he said.

By Park Han-na (hnpark@heraldcorp.com)