Savings Insurance Yields Plummeting Without Bottom... Even '2%' Is Precarious (Comprehensive)

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 at banks) in the first half of this year, are steadily declining. Due to the prolonged low interest rate environment, insurance companies have lowered the declared interest rates, making it difficult to maintain even '2%'. Those who subscribed to interest rate-linked insurance products are concerned that the amount of maturity refunds they receive 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 top life insurer, 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 Tongyang 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 the rate for protection-type insurance 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 1.50%, the same as the previous month.

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 rates have also been on a downward trend. For interest rate-linked products, a drop in the declared interest rate means a reduction in maturity refunds.

Will the 'Brief' Popularity of Savings-Type Insurance Fade?

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 wane. Premium income from savings-type insurance grew rapidly 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.

Recently, concerns over negative spread have increased due to low interest rates. In the past, insurance companies competitively sold fixed-rate products guaranteeing high interest rates. However, with interest rate cuts, the payouts on insurance benefits have exceeded the returns earned from asset management.

The situation is worsening especially 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 insurers to premiums paid over the past year and serves as a reference for insurers' business plans and assumed interest rates for the following year.

The lowering of the average declared interest rate is also expected to lead to premium increases. Samsung Life Insurance and Kyobo Life Insurance lowered their assumed interest rates by about 0.25 percentage points this month following reductions in April. Hanwha Life Insurance also lowered its assumed interest rates twice this year.

An industry insider 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.