Savings Insurance Yields Plummeting Without Bottom... Even '2%' Barely Holding On

Insurance Companies Lower Public Interest Rates One After Another
Average Public Interest Rate to Decrease Next Year for the First Time in 3 Years

[Asia Economy Reporter Oh Hyung-gil] The returns on savings-type insurance policies, which were sold extensively through bancassurance (insurance sold by banks) in the first half of this year, are steadily declining. Due to the prolonged low-interest-rate environment, insurance companies are lowering the declared interest rates, making it difficult to maintain even '2%'. Those who have subscribed to interest rate-linked insurance products are concerned that the refund amount received at maturity will decrease.

According to the insurance industry on the 29th, the declared interest rates for savings-type insurance policies by life insurance companies currently stand at around 2 to 2.5%. Samsung Life Insurance, the number one in the life insurance sector, lowered its declared interest rate by 0.03 percentage points to 2.34% this month compared to the previous month. Hanwha Life Insurance reduced its rate from 2.32% to 2.3%, and Kyobo Life Insurance also lowered its declared interest rate from 2.34% to 2.32%.

Mid-sized companies such as Dongyang Life Insurance (2.3%), Shinhan Life Insurance (2.25%), and Orange Life Insurance (2.2%) are also joining the trend of lowering declared interest rates one after another.

The same trend applies to non-life insurance companies. Samsung Fire & Marine Insurance's declared interest rate for savings-type insurance dropped by 0.05 percentage points from the previous month to 1.55%, and for protection-type insurance, it fell by 0.10% to 1.50%. DB Insurance recorded a 1.50% interest rate for both savings and protection insurance, each lowered by 0.05%. Hyundai Marine & Fire Insurance and KB Insurance maintained their savings and protection insurance interest rates at the same level as the previous month, 1.50%.

The declared interest rate represents the interest rate paid to customers, similar to bank deposit rates, and is linked to market interest rates.

Insurance companies adjust the declared interest rate monthly; when market interest rates fall, insurers lower the declared interest rate to reduce losses. With the base rate cut twice this year, the declared interest rate is also on a downward trend. For interest rate-linked products, a decrease in the declared interest rate means a reduction in the maturity refund amount.

Savings-type insurance gained brief popularity in the first half of this year amid the low-interest-rate environment caused by the COVID-19 pandemic, but this is also expected to fade. Premium income from savings-type insurance grew significantly by 11.0% and 19.3% year-on-year in the first and second quarters, respectively, driving overall growth in the life insurance market.

The Korea Insurance Research Institute forecasts a 2.6% decrease in premium income from savings-type insurance next year. Although short-term liquidity funds continue to flow into savings-type insurance, concerns over widening negative spread limit further expansion.

In particular, the situation is worsening as the average declared interest rate is expected to decline next year. The Financial Supervisory Service recently disclosed that the average declared interest rate for 2021 was 2.25%, down from 2.5% in 2018, marking a decline after three years. The average declared interest rate refers to the average interest rate applied by insurance companies to premiums paid over the past year and serves as a reference for insurers' business plans and expected interest rates for the following year.

There are also expectations that insurance premiums will rise due to the reduction in the average declared interest rate. Samsung Life Insurance and Kyobo Life Insurance lowered their expected interest rates by about 0.25 percentage points this month following reductions in April. Hanwha Life Insurance also lowered its expected interest rate twice this year.

An industry official said, "Since the return on invested assets is trending downward, we have no choice but to adjust the declared interest rate downward," adding, "Because the interest rate for next year is determined based on the average declared interest rate, it could act as a factor for premium increases."

This content was produced with the assistance of AI translation services.