Insurance Companies Welcome High-Interest Savings Insurance Repurchases... "Now Is the Right Time"

Financial Supervisory Service Operates Insurance Contract Repurchase TF
Expectations for Surrender of Savings Insurance at a Premium Amid Negative Margin Concerns
Major Life Insurers Welcome... "Reduced Negative Margin Burden Due to High Interest Rates"

Only for savings-type insurance, policyholders will be able to receive additional amounts beyond the agreed surrender value when terminating their insurance contracts early. As financial authorities have begun discussions with the industry to establish related systems, major life insurance companies are actively engaging in the process. Given that the high-interest-rate environment is expected to continue for some time, this is interpreted as an effort to create a foundation to offload products with concerns about negative spreads under less burdensome conditions.

According to the industry on the 11th, the Financial Supervisory Service (FSS) is operating a task force (TF) with the life insurance industry regarding the financial product repurchase rights (contract buyback) in the insurance sector. If a system introduction plan is prepared within the year, the Financial Services Commission will review the possibility of consumer harm during the contract buyback process and then decide whether to permit it. Yoon Chang-hyun, a member of the People Power Party, is also preparing to propose a revision to the 'Financial Consumer Protection Act' that would allow financial consumers to request repurchase from financial companies at any time and enable certain products such as savings insurance to receive additional amounts on top of the surrender value.

Requests for establishing a 'contract buyback' system that allows policyholders to receive a premium on top of the surrender value when terminating contracts have been consistently raised. This is because the burden on insurers has increased due to the low-interest-rate environment and liquidity concentration. Previously, the life insurance industry sold high-interest-rate savings insurance with annual rates of 6-8% from the late 1990s during the IMF financial crisis, considering it manageable given the market interest rates at the time. In 2012, they even conducted 'discontinuation marketing' to sell large volumes. However, as the era of prolonged low interest rates began, the burden increased. Since insurers typically invest mainly in stable bonds, when market interest rates fell, it became difficult to achieve investment returns higher than the guaranteed rates promised to savings insurance customers. Because cancellations usually occur every 10 years, until the COVID-19 period when ultra-low interest rates around 1% persisted, these policies were regarded as 'toxic inventory' within insurers.

However, the atmosphere has changed. A global interest rate hike has begun, and the prevailing market view is that interest rates are unlikely to decrease for the time being. Since concerns about negative spreads are not as severe as before, it is seen as necessary to somewhat reduce savings insurance policies by actively utilizing the contract buyback system and offering premiums to customers. Although this will incur costs initially, it is interpreted as a preemptive measure to prepare for future uncertainties in interest rate fluctuations. It is akin to a 'voluntary retirement' concept within the insurance portfolio.

The FSS task force mainly includes large life insurers such as Samsung Life Insurance, Kyobo Life Insurance, and Hanwha Life Insurance. Among them, Samsung Life Insurance is reportedly the most proactive. Because it holds the largest contract volume and is the top insurer in terms of asset size, it has relatively greater capacity to bear the cost of surrender premiums guaranteed to customers. According to the Financial Supervisory Service's Financial Statistics Information System, as of the end of the first quarter of this year, Samsung Life Insurance held the largest cumulative savings insurance contract volume at 71.7515 trillion KRW, followed by Kyobo Life Insurance at 34.925 trillion KRW and Hanwha Life Insurance at 33.6987 trillion KRW.

A representative from a major life insurer explained, "Given the outlook that the high-interest-rate environment is unlikely to ease for the time being, there is no burden from negative spreads, so we want to manage this proactively. Under the newly introduced IFRS17, insurance contracts are recognized gradually, so the accounting burden is also lighter."