Management’s Discussion & Analysis

Throughout the year, Korean Re focused on strengthening its business portfolios with the goal of enhancing the profitability of its overall insurance business and improving investment performance. As a result, our top-line revenue slightly declined in 2024 compared to the prior year, but our bottom-line performance improved. Our gross written premium (GWP) decreased by 7.2% year on year to KRW 7,924.8 billion, while insurance revenue declined by 0.6% to KRW 5,136.6 billion. However, our net income increased by 11.6% to KRW 316.7 billion, with a return on equity (ROE) of 9.4%.

Our technical result, which includes the insurance service result and insurance finance result, declined by KRW 76.8 billion year on year to a profit of KRW 15.2 billion in 2024. The decline was spurred by a deficit in L&H reinsurance, stemming from a proactive valuation adjustment of a certain overseas life portfolio. In contrast, P&C reinsurance delivered a solid performance due to the impact of a reduced loss ratio driven by hard market conditions both domestically and internationally.

Meanwhile, active portfolio management enabled us to diversify our global business portfolio, increasing our presence in Europe and the Americas, which accounted for a greater share of the total business. According to a geographical breakdown of our gross written premiums, markets in Europe and the Americas accounted for 30.4% and 27.2%, respectively, of the entire overseas business portfolio in 2024. Their combined share reached 57.6% in 2024 compared to 42.2% in 2019. It is also noteworthy that the share of the Asian market declined to 38.8% in 2024 compared to the previous year as a result of our portfolio adjustments aimed at improving overall business results.

We achieved a high level of investment returns, amounting to KRW 389.3 billion in investment income. The year-over-year increase in investment income was KRW 125.5 billion, driven by a higher book yield and growth in invested assets. We conducted bond portfolio rebalancing in 2024, which was smaller in scale than in 2023, in anticipation of a gradual decline in interest rates, resulting in a slight improvement in book yield.

The total value of our assets continued to grow in line with our business growth. We reported KRW 13,160.4 billion in total assets as of the end of 2024, up KRW 1,094.1 billion year over year. There was a substantial increase of KRW 1,100.4 billion in invested assets, which totaled KRW 10,834.1 billion. This growth was mainly driven by an increase in net cash inflows from insurance operations and asset valuation gains following changes in foreign exchange rates and interest rates. Moreover, we maintained our capital position at a stable level, with total shareholders’ equity increasing to KRW 3,452.9 billion as of the end of December 2024. The substantial growth in total shareholders’ equity from the previous year is primarily due to our strong net income performance.

█ Overseas Business Portfolio* by Region in 2024

(Unit: %)

* Based on gross written premiums
** Others include multi-territory accounts.

█ Domestic Insurance Revenue Portfolio by Line of Business

* Property includes engineering and nuclear.

█ Overseas Insurance Revenue Portfolio by Line of Business

* Property includes engineering and nuclear.

Property and Casualty (P&C) Reinsurance

Our P&C insurance revenue decreased from KRW 3,840.5 billion in 2023 to KRW 3,762.3 billion in 2024, marking a 2.0% decline. Domestic insurance revenue fell by 8.1% to KRW 2,020.3 billion in 2024 due to portfolio adjustments. Throughout the year, we placed a strategic focus on strengthening our business portfolios and improving our long-term profitability. Accordingly, we restricted growth targets to prioritize reinforcing our business fundamentals and significantly reduced our underwriting volume for products with low profitability.

On the other hand, overseas P&C insurance revenue increased by 6.0% to KRW 1,742.1 billion in 2024, driven by the expansion of new treaties and rate increases. This growth in the overseas market partially offset our revenue decline in the domestic market.

The P&C insurance service result saw a substantial increase to KRW 265.1 billion in 2024, marking a 215% growth. This reflects a major improvement in underwriting profitability. The technical result also grew by 262% to KRW 200.0 billion in 2024.

As a result, the combined ratio improved from 96.4% in 2023 to 89.1% in 2024. A combined ratio below 100% indicates profitability in insurance operations, demonstrating a significant enhancement in overall business efficiency.

Upon reviewing our claim budget, which is planned at the beginning of each year, it is evident that P&C insurance service profit was driven by a reduction in attritional losses in 2024. The claim budget refers to the annually established acceptable level of losses to achieve profit targets. In 2024, only 84% of the claim budget for attritional losses was consumed, with actual attritional losses amounting to KRW 1,543.9 billion. This smaller-than-expected volume of attritional losses contributed to an overall decrease in losses. However, large losses exceeded our budgeted expectations in 2024 due to unusual events such as the Middle East floods (notably in Dubai) and significant loss creep related to the 2023 hailstorm in Italy.

█ Claim Budget vs Actual Losses in 2024

(Unit: KRW billion)

Building on the progress we made in 2024, we look forward to further strengthening our underwriting performance in the years to come. The market has been responding to increasing claims costs by correcting prices and restricting terms and conditions. In step with these market movements, we will continue to exercise strong underwriting discipline to improve our technical profitability. Favorable pricing movements, coupled with our strictly disciplined approach to underwriting, will position our business to generate solid results going forward.

█ Investment Income

(Unit: KRW billion)

█ Investment Portfolio Mix in 2024

(Unit: %)

█ Investment Yield

* Excluding gain/losses from foreign exchange and interest rate hedging for insurance liabilities for 2020 – 2024 and the insurance finance result for 2023 and 2024
** The investment yield for 2023 and 2024 is based on IFRS 9, while the rest are based on IAS 39.

Korean Re has maintained sufficient liquidity to meet all financial requirements in both stable and uncertain conditions. In 2024, our liquidity ratio declined from 293.3% to 254.7%, yet it remains at a solid and stable level.

While there was a sharp increase in liquidity ratio in 2023 due to the expanded recognition of liquid assets under the revised regulatory framework, we focused on purchasing medium- to long-term bonds, particularly long-term government bonds, to enhance our investment profitability in 2024. As a result, our liquid assets decreased by 17.8% (KRW 716.9 billion) compared to the previous year-end figure, while the average insurance claims also decreased by 5.4% (KRW 73.5 billion).

To ensure an adequate liquidity ratio, we also operate and maintain bank overdrafts to prepare for events that may deteriorate liquidity, such as losses from alternative investments and large-scale insurance claims. The size of our bank overdrafts stood at KRW 300 billion as of 2024.

Additionally, we took measures to enhance the management of our foreign currency liquidity, including that of our overseas branches. As part of these efforts, we introduced foreign currency money market fund (MMF) transactions to ensure a more efficient and stable liquidity management system.

Korean Re always aims to optimize its capital structure and hold sufficient capital in excess of solvency requirements, generating a strong solvency margin ratio (or K-ICS ratio). In 2024, our K-ICS ratio increased by 8.5%p to 191.7% compared to the previous year thanks to our stable net income growth and effective ALM management.

Despite the switching of the solvency margin ratio system from the RBC regime to the K-ICS regime in 2023, as well as the associated increase in confidence levels related to capital requirements measurement, we have maintained a robust K-ICS ratio, demonstrating our financial health.

After the successful issuance of hybrid capital securities in 2014 and completing its redemption by successfully refinancing in the Korean capital market in 2019, Korean Re maintained efficient capital management by issuing new hybrid capital securities in line with the requirements of regulatory authorities and expectations of credit rating agencies. This has enabled us to maintain a sound solvency margin ratio and to further strengthen our balance sheet with an A (Positive) rating by S&P Global Ratings. Utilizing the buffer on the capital, we have been able to increase the level of retention on profitable domestic risks.

We completed redemption of the 2nd hybrid capital securities issued in 2019 by refinancing them in 2024. In the long term, we are pursuing organic growth of capital from consistently solid net income results and CAT reserve accumulation.

We will continue to implement prudent capital management measures in ways that enable us to take advantage of favorable market conditions and increase our reinsurance business acceptance as well as to maintain a strong capital position under the IFRS 17/K-ICS regimes.

Korean Re has maintained high credit ratings from both S&P Global Ratings and AM Best. The financial strength of a reinsurer is one of the most critical factors for primary insurers in selecting their reinsurance counterparties. We have been striving to remain financially strong, backed by sound risk-based capitalization and stable earnings.

In February 2024, S&P Global Ratings affirmed Korean Re’s Financial Strength Ratings at A but revised its outlooks to Positive from Stable, reflecting its improved view on the company’s capital and earnings. This outlook revision highlights a greater level of risk diversification and increased visibility on our future profits under IFRS 17. The credit rating agency said in its rating report, “The positive rating outlook reflects our expectation that Korean Re will continue to build a record of very strong capital adequacy, while maintaining its dominant position in the domestic reinsurance market over the next 12-18 months.”

It is also expected that Korean Re’s capitalization will be supported by the company’s stable and sound profitability as it leverages its very strong competitive position, according to the statement by S&P Global Ratings.

In December 2024, AM Best upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to a+ (Excellent) from a (Excellent) and affirmed Korean Re’s Financial Strength Rating (FSR) of A (Excellent). In addition, the rating agency revised the outlook of the Long-Term ICR to Stable from Positive while maintaining a Stable outlook for the FSR. The ratings reflect Korean Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favorable business profile, and appropriate enterprise risk management.

According to AM Best, the upgrade of the Long-Term ICR reflects Korean Re’s improved balance sheet strength, underpinned by its risk-adjusted capitalization that showed a noticeable rise in 2023, and is expected to remain at a similar level over the medium term, as measured by Best’s Capital Adequacy Ratio (BCAR). The improvement was driven by increased available capital from hybrid bond issuance in 2023, continued solid profit retention, as well as reduced underwriting risk following the restructuring of the company’s business portfolio. The ongoing efforts to offload unprofitable business are expected to contain the increase in underwriting risk in the foreseeable future and benefit Korean Re with organic growth in retained earnings over the long term. At the same time, the company has demonstrated well-matched asset and liability management, which indicates its capability to maintain a stable solvency ratio and withstand interest rate fluctuations. Other supportive balance sheet strength considerations are good accessibility to capital markets and a conservative investment strategy.

This report contains forward-looking statements, including statements regarding Korean Re’s future operations, strategies, financial condition, and business prospects. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Korean Re undertakes no obligation to update or revise any forward-looking statements to reflect future events or circumstances.

█ Risk Appetite Framework

Capital Management

Korean Re’s capital is managed through a framework which provides a robust foundation for capital management. To ensure Korean Re’s sound capital management, we align our risk management strategy with our long-term business strategy. Strategic objectives are examined from the perspective of our risk management strategy to be certain if they are in accordance with our risk appetite, and the results are then reflected in our business plans. We also have a detailed capital management plan in place based on the levels of solvency ratio in order to maintain the optimal range of solvency. Korean Re’s capital management framework is comprised of three main modules: capital planning, business planning, and risk planning. Each module is structured to ensure full compliance with Korean Re’s risk appetite and tolerance.

 

Portfolio Optimization

Korean Re performs business planning by analyzing the risks and profitability of its businesses. We measure return on risk-adjusted capital (RORAC) for each line of our insurance business and investment asset portfolio through our own internal model. Based on this, the Strategic Planning office draws up plans for optimal portfolios and then finalizes annual plans that can achieve capital efficiency with respect to risk appetite and improve our RORAC.

 

Risk Governance

Korean Re has built a comprehensive framework for risk governance based on central oversight and controls of risks with clear accountability. This structure supports risk-based decision-making and oversight across all operations of our businesses. Risk governance defines the roles and responsibilities of the Board of Directors, committees, management structures, and related teams. It also involves the implementation of three lines of defense as part of the structure.

The Three Lines of Defense model that we implement demonstrates our risk governance, laying out the roles of business and oversight organizations in managing our risk profile. The first line of defense includes front-line managers and staff who are responsible for day-to-day risk management and decision-making. (Overseas office staff are also a first line of defense.) Their primary responsibility is to maintain an effective control environment and ensure that all activities are within our risk appetite. The second line of defense deals with setting risk policies and overseeing our risk management status. This involves the Risk Management Team, the Chief Risk Officer (CRO), the Risk Management Committee (RMC), the Risk Management Special Committee (RMSC), the Investment Deliberation Committee, and compliance functions, that is, the Compliance Team, the Compliance Officer, and the Internal Control Committee. The third line of defense provides independent assurance through an internal audit and validates the effectiveness of the first and second lines of defense in fulfilling their responsibilities and managing our risk profile.

█ Three Lines of Defense

Risk Landscape of Korean Re

In the course of its business operations, Korean Re is confronted with a wide range of risks. These risks are consciously embraced, guided, and monitored in line with the actions taken toward the corresponding opportunities. The Board of Management’s parameters and decisions regarding Korean Re’s risk appetite, which are grounded in risk-bearing capacity calculations, are essential for risk acceptance. In this regard, our risk management plays a pivotal role in ensuring that risks to the reinsurance portfolio remain measurable and that even extraordinary major losses do not excessively impact the outcome.

█ Risk Landscape of Korean Re

Key Risks

We manage five key risks— insurance risk, financial risk (credit & market), liquidity risk, emerging risk, and operational risk (which includes strategy, reputation, regulation and legal risks)—all of which are likely to have a significant impact on our financial results and/or operational viability. In doing so, we implement a series of procedures that include risk identification, measurement, control, analysis, and reporting.

 

Insurance Risk

Korean Re defines insurance risk as the risk of unexpected financial losses arising from the inadequacy of premiums or reserves for natural catastrophe or non-catastrophe events, or from the unpredictability of biometric risks, such as the mortality rate.

We manage insurance risks in a consistent manner across the company by assessing and monitoring them in accordance with clearly defined underwriting guidelines.

Furthermore, we utilize a natural catastrophe modeling program and an accumulation management system to effectively control catastrophe risk at the corporate level.

 

Market Risk

Korean Re defines market risk as the risk of losses arising from fluctuations of the value of assets and liabilities due to changes in relevant factors, such as interest rates, stock prices, and foreign exchange rates. We manage this risk in our day-to-day operations and, more specifically, hedge against foreign exchange risk using derivatives in order to keep our exposure at a safe level.

At the same time, we closely monitor global economic and financial market conditions and outlooks that can affect our investment performance in order to analyze their potential impact and come up with effective countermeasures.

 

Credit Risk

Our credit risk system focuses on any losses arising from the failure of the counterparty to a reinsurance contract to meet its contractual obligations or from deterioration in the credit quality of invested assets.

We conduct an analysis of potential losses before making any high-risk business decisions, including whether to write new business contracts or invest in derivatives. When necessary, these decisions are made through the review process of the Risk Management Special Committee and the Investment Deliberation Committee. Identifying any abnormal signs related to retained risks is also an essential element of our preemptive risk management system.

 

Liquidity Risk

We plan and manage our liquidity positions in order to deal with future claims payments and expenses as they arise. To this end, we set liquidity limits based on our future cash flow, and then monitor them regularly.

Generally, our liquidity is managed based on short-term and mid-term working capital management plans by the Accounting Team and Investment Strategy & Operations Team. On this basis, we regularly monitor the liquidity status of the company.

We also manage liquidity risk through the regulatory liquidity ratio and S&P liquidity ratio to meet short-term and future payment obligations. Specifically, we establish our tolerance and limit based on our S&P liquidity ratio, which is measured by dividing stressed liquid assets by stressed insurance liability outflows. We set and manage the minimum liquid asset level on an ongoing basis to meet our daily business obligations, settlements, and expenses in a normal situation.

 

Operational Risk

Korean Re defines operational risk as the risk of potential losses arising from inadequate or failed internal processes or systems or human errors, and/or from external events. We have identified a set of operational risks that cover various business units and activities, including strategy, reputation, new product development, and claims management.

We manage these risks through effective policies and procedures that have a clear separation of duties, timely internal controls, and reporting systems. Through the internal control system, operational risks are managed systemically based on our Code of Conduct and other internal regulations.

 

Emerging Risk

Emerging risks are defined as types of risks that were either not recognized or not considered of significant interest in the past but have started to gain attention.

Our approach to managing emerging risks involves a comprehensive analysis, and each team establishes management strategies for their respective risks based on a detailed analysis report on potential emerging risks.

The emerging risks that we have selected for 2025 are as follows:

• Geopolitical Conflicts and Clashes
· The escalation of armed conflicts may lead to large-scale migration and a concentration of risks in specific regions.
· Maritime disputes can result in increased marine insurance premiums and transportation costs.
· Rising tensions may cause asset losses due to strikes, riots, and civil commotions (SRCC) and also impact business interruption losses.

• Damage to Social Infrastructure Systems due to Increased Natural Disasters
· The combined impact of disasters and the interconnectivity between major infrastructure and supply chains can lead to an accumulation of losses.
· If critical infrastructure such as power transmission lines and power plants is damaged by natural disasters, claims may arise under Property Insurance and Business Interruption Insurance.
· Facilities that rely on continuous power supply, such as hospitals, data centers, and security systems, may suffer cascading damages.

By proactively identifying and addressing these emerging risks, we aim to enhance our resilience and ensure the effectiveness of our risk management strategies. These efforts align with our commitment to staying ahead of evolving challenges and safeguarding the interests of our stakeholders.