[2020 National Audit] Surge in Savings-Type Foreign Currency Insurance Sales... 5.5 Times Increase in 3 and a Half Years '↑'

Assemblyman Hong Sung-kook, National Assembly Political Affairs Committee Audit on the 13th
"Long-term soundness risk factors... Continuous monitoring needed"

Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Ki Ha-young] As life insurance companies' sales of foreign currency insurance steadily increase, concerns have been raised that this could pose a risk to long-term soundness.

Foreign currency insurance is a market that life insurers are increasingly entering due to growing consumer demand to use dollar insurance as a financial investment, driven by a preference for safe assets amid global financial instability.

According to data submitted by the Financial Supervisory Service to Hong Sung-guk, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, the cumulative sales of foreign currency insurance by life insurers reached 3.2375 trillion KRW as of the end of June. Foreign currency insurance products have the same structure as won-denominated insurance but premiums and benefits are paid entirely in foreign currencies (such as the US dollar).

Sales amounted to only 323 billion KRW in 2017 but increased to 683.2 billion KRW in 2018 and 969 billion KRW last year, showing an upward trend each year. This year, 757.5 billion KRW was sold in the first half alone.

The majority of foreign currency insurance consists of savings-type foreign currency insurance, which has been rapidly increasing in sales volume. As of the end of June, the cumulative sales amount of savings-type foreign currency insurance by life insurers was 2.7575 trillion KRW, a 446% surge compared to 54.9 billion KRW at the end of 2016.

Considering that the 10-year Korean Treasury bond yield is around 1.5% and the 10-year US Treasury bond yield is about 0.8%, while the interest rate on recently sold savings-type dollar insurance is around 3%, concerns are growing that the increase in sales of savings-type insurance could deteriorate insurers' asset soundness in the long term.

Rep. Hong stated, "While the increase in sales of savings-type foreign currency insurance may improve life insurers' short-term performance, in the long run, asset soundness could worsen and exchange rate fluctuation risks may increase, so continuous management by financial authorities is necessary."

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