Life Insurance Premiums Also Increase from April... Premiums Raised by 5-10%

Samsung Life Insurance Lowers Scheduled Interest Rate by 0.25%P
Other Life Insurers Also Plan to Reduce Rates

[Asia Economy Reporter Ki Ha-young] Starting from April, the life insurance industry will also raise insurance premiums. This is due to worsening performance caused by prolonged low interest rates.

According to the industry on the 20th, Samsung Life Insurance will lower its assumed interest rate by 0.25 percentage points from April 1. The assumed interest rate is the expected rate of return that an insurance company can earn by investing the premiums received from customers until the insurance benefits are paid. When the assumed interest rate decreases, the premiums that policyholders must pay increase even if the insurance benefits remain the same. Typically, a 0.25 percentage point decrease in the assumed interest rate is known to raise premiums by 5 to 10%.

Hanwha Life Insurance also plans to reduce the assumed interest rate starting in April. Kyobo Life Insurance is considering lowering it by 0.25 percentage points in April as well. NongHyup Life Insurance is considering adjusting it by 0.25 to 0.5 percentage points depending on the product.

The life insurance industry's move to lower the assumed interest rate and raise premiums is due to worsening performance caused by prolonged low interest rates. Hanwha Life Insurance recorded a net income of 57.2 billion KRW last year, a sharp drop of 87.2% compared to the previous year. This was because the variable guarantee reserves increased due to the decline in market interest rates. Variable guarantee reserves are funds set aside to guarantee the minimum death benefits or pensions of variable products; when stock prices or interest rates fall, the required reserve amount increases, thereby reducing net income.

Samsung Life Insurance, the industry leader, also saw its net income last year fall by 41.3% year-on-year to 977.4 billion KRW. Due to worsening variable guarantee profit and loss caused by the interest rate decline, net income fell below 1 trillion KRW for the first time in seven years.

The business environment for the life insurance industry this year is also bleak. With the spread of the novel coronavirus (COVID-19), the possibility of interest rate cuts is increasing in major countries such as the United States. Unless interest rates rebound, it will be difficult for the life insurance industry's performance to structurally improve.