Financial Authorities Review Insurance Companies' Bonus Systems
Major Focus on Non-Life Insurers with Strong Performance
Card Companies' Loan Interest Rates Also Under Review
[Asia Economy Reporter Minwoo Lee] Following recent criticism of banks for their "bonus parties," financial authorities are now reviewing the appropriateness of the performance-based compensation systems at insurance companies and card companies.
According to the financial sector on the 17th, the Financial Supervisory Service is inspecting the performance-based compensation systems of some insurance companies. The aim is to determine whether they have held excessive "bonus parties" relative to their profits. Initially, some insurance companies with high profits have been identified as targets. Since President Yoon Seok-yeol recently criticized banks for holding money parties after profiting from interest businesses, the criticism has now extended to insurance companies in the financial sector.
Non-life insurance companies that achieved record-breaking results are expected to be the main targets. Samsung Fire & Marine Insurance posted a net profit of 1.2837 trillion won last year, a 14.1% increase from the previous year. Meritz Fire & Marine Insurance also achieved its highest-ever net profit of 863.8 billion won last year. Major non-life insurers such as DB Insurance (997 billion won) and Hyundai Marine & Fire Insurance (574.5 billion won) also recorded strong performances. This is attributed to an unprecedentedly low automobile insurance loss ratio due to COVID-19, which allowed for various cost reductions.
Based on these results, Samsung Fire & Marine Insurance paid its employees a record-high performance bonus equivalent to 47% of their annual salary on the 31st of last month. DB Insurance also paid a performance bonus equivalent to 41% of annual salary. KB Insurance set the performance bonus at 550% of the monthly bonus. Hyundai Marine & Fire Insurance and Meritz Fire & Marine Insurance are also expected to pay performance bonuses of around 30% and 40% of annual salary, respectively.
Financial authorities are also assessing the current status of performance-based compensation systems at card companies. Having already launched a major push to induce reductions in bank loan interest rates, they plan to encourage reductions in loan interest rates for products such as cash services, which have relatively higher rates.
According to the industry, the net profits of Shinhan, KB Kookmin, Hana, and Woori Card decreased by 8.3% year-on-year to 1.417 trillion won. Only Woori Card saw a slight increase of 4 billion won (2.0%) compared to the previous year, while Shinhan (-5.0%), KB Kookmin (-9.6%), and Hana (-23.3%) all experienced declines. Samsung Card recorded a net profit of 622.3 billion won last year, growing 12.9% year-on-year. This is attributed to securing funds before the credit market tightened and specialized financial bond interest rates surged, thereby saving related costs.
When the funding market tightened last year, card companies responded by reducing customer usage limits and raising credit loan interest rates to the mid-to-high teens, among other internal controls. However, these measures were criticized for neglecting customers' financial difficulties. Furthermore, Samsung Card, which posted strong results, began to be targeted for criticism in the financial sector for paying performance bonuses equivalent to 50% of annual salary.
In this situation, financial authorities plan to encourage card companies to voluntarily lower interest rates on loan products such as card loans, cash services, and revolving credit. Some card companies, conscious of the government and public opinion, are reportedly considering voluntarily lowering interest rates on card loans and other products.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
