What Will Be the Outcome of the Immediate Annuity Non-Payment Lawsuit... Will It Be Decided Next Year?

Product Returning Full Insurance Premium at Maturity
Insurance Companies May Have to Refund Billions if They Lose
"Court Rulings Vary... Outcome Cannot Be Predicted"

[Asia Economy Reporter Oh Hyung-gil] The insurance industry is in turmoil following news that two immediate annuity subscribers won a lawsuit against Mirae Asset Life Insurance, demanding the return of unpaid immediate annuity funds.

This was the first case in which a court sided with consumers amid ongoing class-action lawsuits against several insurance companies regarding immediate annuities. Insurers are closely monitoring how this ruling might affect other lawsuits involving more subscribers.

According to the insurance industry on the 14th, the plaintiffs who filed the class-action lawsuit against Mirae Asset Life Insurance had each paid a lump sum premium of 49 million KRW in April 2012 for immediate annuity insurance and have been receiving approximately 170,000 KRW monthly as annuity payments.

The product is a maturity refund type that returns the full principal premium at maturity, characterized by receiving interest generated from the 49 million KRW investment as an annuity. However, the plaintiffs filed the lawsuit claiming that the amount received was less than initially explained.

The insurer deducts business expenses and other costs as compensation for managing the 49 million KRW paid by subscribers. To cover the principal loss incurred during this process, part of the interest paid monthly to subscribers was withheld and accumulated to be returned at maturity.

The subscribers argued, "There was no explanation that part of the annuity would be separately reserved to fund the maturity refund," demanding that the entire amount calculated by applying the declared interest rate to the net premium be paid as an annuity.

The insurer countered that the insurance contract included a clause stating "consideration of the maturity refund when paying monthly annuities," and that the payment amounts were explained according to the annuity payment example table, so there was no issue with the annuity calculation.

The court ruled in favor of the subscribers, stating that the clause "considering the maturity refund" did not sufficiently explain the annuity calculation method. Mirae Asset Life Insurance said it has not yet decided whether to appeal.

There have also been cases where insurers won in similar immediate annuity lawsuits.

In September, the Suwon District Court ruled in favor of NongHyup Life Insurance. NongHyup Life Insurance had included an explanation in the contract that annuity amounts would be deducted to reserve the maturity refund.

At that time, NongHyup Life Insurance specified in the contract that "for the first five years after subscription, the monthly annuity amount will be reduced so that the accumulated annuity contract amount after five years equals the premium." This means part of the annuity amount is deducted.

The key issue is whether the deduction of annuity amounts was explained

The largest immediate annuity lawsuit against Samsung Life Insurance is still ongoing. Due to the COVID-19 pandemic and other factors, a verdict is expected in the first half of next year.

So far, the court hearings have focused on whether sufficient explanation was given that the maturity refund fund would be deducted from the monthly annuity payments.

Samsung Life Insurance's contract states, "The monthly annuity amount is calculated based on the accumulated amount of the annuity contract at the start of annuity payments and paid monthly on the contract date during the insurance period." There is no separate mention of deducting the maturity refund fund.

Instead, it includes the clause, "The accumulated amount of the annuity contract shall be calculated according to the method specified in the calculation manual for this insurance."

Samsung Life Insurance argues, "The basic documents for immediate annuities, including the 'contract and calculation manual for premiums and reserves,' contain provisions that the maturity refund fund is deducted at the time of monthly annuity payments." On the other hand, subscribers counter that "the calculation method was not specified in the contract nor explained."

The insurance industry expects that resolving the immediate annuity disputes will take a considerable amount of time. If the losing party appeals, it could take several years.

A Samsung Life Insurance official said at an investor relations (IR) meeting held on the 12th, "Court rulings are divided, so it is difficult to predict the outcome," adding, "The currently known lawsuit amounts depend on the court's decision, so it is hard to estimate specific figures."

He further explained, "The ongoing immediate annuity lawsuits include both past and future insurance payments. Since future payments are included in the payable insurance amount, large costs will not occur all at once, so the financial impact is not significant."

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