Low interest rate environment threatens South Korean life insurers' profits: report

Premium growth is suppressed by a weak economy and reduction of sales.

Lower-for-longer interest rates are widening South Korean life insurers’ negative spreads and threatening their profitability, according to a Moody’s report.

Premium growth will stay subdued amidst a weak economy and reduction of sales of low-margin savings-type and annuity products in favor of less-interest sensitive offerings for the new accounting and capital standards by 2022.

Read more: South Korea insurance profits down 7.4% to $6.5b in 2018

“Insurers are focusing on more granular health insurance products, which offer higher margins. These products also allow insurers to carry less reserve on their balance sheet while maintaining relatively stable risk margins,” the report noted.

Negative spreads of major life insurers have widened since H2 2018 due to a persistent drop in domestic bond yields, amidst efforts to increase the share of protection-type and floating-type products to lessen liabilities cost. Higher insurance claims from health and medical policies and flat premium growth led to the surge in industry loss ratio to 84.7% at the end of H1 2019 from 81.1% in 2017.

Insurers are increasing their overseas investments to lengthen their asset durations due to a tightening regulatory capital regime, the report stated, but capitalisation remained stable.

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