Stock Market Decline Causes Sudden Freeze in Life Insurance Variable Annuity Market

[Asia Economy Reporter Changhwan Lee] In the first quarter of this year, both domestic and international stock markets showed weakness, leading to a decline in the popularity and profitability of variable insurance products offered by major life insurance companies. As the situation with variable insurance worsens, it is expected that the first-quarter performance of life insurers will fall short of expectations.

According to the Life Insurance Association on the 5th, the initial premium amount for variable insurance from domestic life insurers in January this year was 219.2 billion KRW, a 56% decrease compared to 498.2 billion KRW during the same period last year. The initial premium refers to the first payment made by the policyholder and indicates the product's popularity and growth potential.

Variable insurance recorded its largest-ever new contracts last year amid a booming stock market, but growth has noticeably slowed this year. The decline in interest in variable insurance is due to difficulties faced by both domestic and international stock markets.

Variable insurance primarily invests customers' assets in the securities market to generate returns, which are then returned to customers. When the stock market performs well, variable insurance yields are good; when the market performs poorly, the situation for variable insurance deteriorates.

Last year, the KOSPI index rose to the 3300 level but dropped to the 2700 level this year, leading to decreased interest and returns in variable insurance products. Overseas stock markets such as those in the United States and Europe have also declined, resulting in similar conditions for variable insurance products investing in foreign markets.

As variable insurance yields worsen, life insurers are also expected to see a decrease in net profits. Due to the nature of insurance products, insurers must pay customers a certain amount, and if the products incur losses, the company must cover these payments from its own funds.

KB Securities forecasted that the combined net profit of three major companies?Samsung Life, Hanwha Life, and Dongyang Life?in the first quarter will sharply decline by 67.3% year-on-year to 454 billion KRW. It analyzed that the overall profit and loss will worsen as variable guarantee profits decrease by 261 billion KRW compared to the previous year.

Seunggeon Kang, a researcher at KB Securities, stated, "With the KOSPI index falling about 300 points in the first quarter and interest rates rising, variable guarantee costs for major life insurers will significantly increase," adding, "There is a high possibility that results will fall short of expectations."

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