Engineering

In 2018, the domestic engineering insurance market continued to face a setback from the difficulties of the construction industry. The ongoing decline in construction activity persisted as construction orders in the public sector diminished by 11.8 percent in the wake of a 14 percent decline in the Korean government’s budget for infrastructure construction.    

The domestic engineering insurance market saw premium income decrease by 2.1% to KRW 261.4 billion in 2018, and premium rates also dropped as the market was still under softening pressure. These unfavorable market conditions led to a decline in our gross written premiums to KRW 126.6 billion. The decrease also had to do with major primary insurers’ strategy to increase their retention levels.

We expect some positive developments, with growth opportunities being unfolded for the engineering insurance market in the coming year. For example, the government allocated a greater amount of funds (KRW 19.8 trillion) to infrastructure construction in 2019, representing a 4.2 percent rise from a year earlier. This will clear the way for fresh investments in public works, such as the construction of roads and railroads. The government also plans to spend KRW 24 trillion on 23 projects under its initiative to promote balanced regional development, which has the potential to create new demand across various engineering lines of business. Korean Re will remain active in providing the necessary reinsurance capacity and help our clients seek new business opportunities.

The business of overseas construction showed signs of bottoming out in 2018 after two years of downturn. Korean contractors’ overseas construction orders rebounded to USD 32 billion in 2018, up 11 percent from the previous year. This also represented a slight recovery from a record low of USD 28 billion in 2016. While orders from the Middle East decreased by 36.9 percent to USD 9.2 billion, those from Southeast Asia increased by 29.7 percent to USD 16.2 billion. Korean builders’ overseas business is expected to show a steady recovery in 2019.

The international construction insurance market suffered a string of heavy losses throughout 2018, with many capacity providers now being forced to react to improve their profitability. Korean Re was not immune from those market defining losses, which impacted our bottom-line result in 2018. Continued soft market conditions in recent years and ever-depressed premium levels have caused a change in our top-line strategy in a way to control and mitigate loss exposure more effectively from a long-term perspective even at the cost of decreased premiums for a while.

Korean Re will continue to move in this direction by putting a greater focus on long-term profitability and tightening terms and conditions based on stricter risk assessment. This may restrain our portfolio growth, but sometimes bottom-line growth may have to come at the expense of top-line growth. In the meantime, we will stay committed to nurturing our long-term relationships with many strategic partners and key clients, including Korean owners and contractors of overseas engineering projects. This effort will inevitably help us boost our business growth in a healthier and more sustainable way. 

Gross Written Premiums: Engineering

(Units: KRW billion, USD million)