Life Insurance Companies' Growth Slows Down Amid Rising Interest Rates

Insurance Company Asset Trends (Source: Korea Insurance Research Institute, Insurance Trends)

[Asia Economy Reporter Changhwan Lee] Due to the sharp rise in interest rates this year, domestic life insurance companies have experienced bond valuation losses, resulting in a significant decline in growth rates.

According to the Korea Insurance Research Institute on the 18th, the total assets of the domestic life insurance industry in the second quarter amounted to 942 trillion won, a 3.8% decrease compared to the same period last year. The total asset growth rate of the life insurance industry showed negative growth for two consecutive quarters, with -0.3% in the first quarter and continuing into the second quarter.

Total assets include earned premiums, policy reserves, special account liabilities, other comprehensive income (OCI), and various bonds, providing an overall view of insurers' growth potential.

Life Insurance Companies' Total Asset Growth Rate (Source: Korea Insurance Research Institute Insurance Trends)

The significant decrease in total assets in the second quarter was due to a sharp rise in market interest rates, which led to a decline in bond valuation gains. Insurers hold a substantial portion of their assets in bonds, and the rapid increase in interest rates caused valuation losses on these bonds.

Due to bond valuation losses, the second quarter's other comprehensive income (OCI) deficit reached 7.1 trillion won. Consequently, the total capital of life insurance companies in the second quarter fell by 38.3% year-on-year to 55.4 trillion won, marking the lowest level since 2018.

The reduction in earned premiums caused by interest rate hikes and stock market declines also hindered growth. Life insurers' earned premiums in the second quarter were 25.5 trillion won, down 8% from the same period last year. This was largely due to a significant contraction in savings-type insurance and variable insurance performance.

Savings-type insurance recorded 10.4 trillion won, an 18.4% decrease year-on-year, affected by reduced interest rate competitiveness and a decline in stock indices. Variable savings insurance sales plummeted by 25.5% year-on-year due to the stock market downturn.

As growth declined, profits also dropped sharply. Based on the first half of the year, domestic life insurers' net income fell 30.7% year-on-year to 2.2 trillion won. This was due to decreased gains from financial asset disposals and dividend income, as well as deteriorated insurance operating profits caused by sluggish new contracts.

Concerns have emerged that the decline in growth of the life insurance industry may continue not only in the second half of this year but also into next year. This is because the central bank's base interest rate hikes are likely to continue through next year, and an economic slowdown is also expected to persist.

An official from the Korea Insurance Research Institute emphasized, "Financial market volatility continues, and the economic slowdown trend that began in the second half of this year is expected to intensify next year," adding, "It is necessary to strengthen asset soundness and liquidity management and to transition to a sustainable and scalable business model through innovation."

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