Life insurance companies that have stagnated due to low birth rates and an aging population have targeted the nursing care business as a new source of revenue. KB Life Insurance, a financial holding company subsidiary, is already operating seven nursing facilities near the capital region. Another financial holding company life insurer, Shinhan Life, established its first nursing facility in Seongnam last year, and Hanwha Life announced it will open a facility in Goyang after setting up a subsidiary this month.
Meanwhile, the top three life insurance companies by asset size—Samsung Life Insurance, Kyobo Life Insurance, and Hanwha Life—are exhibiting a cautious stance toward entering the nursing care business. The three companies have only stated that they will continue to monitor market conditions, including the possibility of regulatory relaxation. What could be the reason?
To understand the situation in the life insurance industry regarding the nursing care business, one must first look at the current laws. According to the current Elderly Welfare Act, it is specified that if a private entity establishes a elderly nursing facility, it must directly purchase land and buildings. This means that it is not permissible to operate a nursing facility by leasing land or buildings.
Because of this, life insurance companies must incur significant expenses when establishing nursing facilities. For example, Shinhan Life Care, a subsidiary of Shinhan Life, which established a nursing center in Bundang-gu, Seongnam last November, spent approximately 30.5 billion won just for securing land.
The potential decline in management indicators also acts as a burden. If a life insurance company directly purchases real estate to establish a nursing facility, it may have difficulty managing its solvency ratio (K-ICS). The K-ICS ratio is an indicator created to assess whether insurance companies can adequately pay out insurance claims in the event of an accident. If this ratio decreases, financial authorities could impose sanctions, which is why insurance companies are focusing on management.
Under the International Financial Reporting Standards for insurance contracts (IFRS 17) implemented last year, if an insurance company holds real estate, it is assigned a risk coefficient of up to 25%. This means that they must set aside reserves corresponding to the possibility that real estate prices may fall by up to 25%.
For example, if an insurance company wants to hold real estate assets worth 10 billion won, it must set aside 2.5 billion won in reserves to avoid lowering its solvency ratio. Additionally, to build 10 nursing facilities with a total scale of 30 billion won, they would need to accumulate 7.5 billion won in reserves. From the perspective of insurance companies looking to expand capital while selling existing real estate to meet the new accounting standards, this can only serve as a burden.
On the other hand, KB Life Insurance, Hanwha Life, and Shinhan Life, which are financial holding company subsidiaries, can expect long-term growth even if they initially incur losses at nursing facilities. The number of users of KB Kookmin Bank, Hanwha Bank, and Shinhan Bank is estimated to exceed 30 million each. This means they can naturally attract users to the nursing facilities by selling related products to their existing bank customers. This gives them a favorable position compared to life insurance companies that do not belong to financial holding companies.
An industry source said, "It is difficult to even purchase land for building large-scale nursing facilities within the capital region, and it could negatively impact the solvency ratio, so we are left with no choice but to hesitate. For this reason, the industry has been calling for relaxation of regulations that require the purchase of land or buildings."