General savings insurance premiums in South Korea are expected to fall by 25% mostly due to the base effect from the surprisingly high growth in 2022, according to a blog posted on the website of Korean Re.
Although there are factors that support the growth of savings insurance, such as an increase in the credited interest rate and the demand to reinvest mature savings plans into new savings insurance products, insurers find it challenging to continue having interest rate competition against other financial institutions such as banks, with rising interest rates on bank deposit products making savings insurance look less attractive.
In 2012, a rush to purchase general savings insurance was observed before the tax changes that took effect in 2013. Consequently, a substantial number of these savings policies matured in 2022. It was anticipated that many of the policyholders receiving maturity benefits would reinvest in new savings insurance. Now that the active phase of reinvestment is tapering off, there is not much potential for a further significant boost in sales of savings insurance
Annuities
While an increasing life expectancy remains the primary driver for the growing demand for annuity plans, the expansion of life annuity supply is likely to face constraints due to challenges in managing longevity risk and dealing with stronger capital requirements under new accounting standards.
General annuity premiums are expected to decrease due to the base effect resulting from the sharp increase in premiums for single-premium insurance policies in the latter half of the previous year. As for individual annuities, there may be an uptick in new enrolments following a tax law revision coming into effect in 2023, which raises tax benefits for individual annuity premiums, but the additional demand spurred by the tax deductions may not be as much as expected.
Variable life savings insurance
Variable life savings insurance is also encountering headwinds, with premium income expected to decline by 9.6% in 2023 amid growing financial market volatility. A weakening economy, alongside rising interest rates and reduced liquidity, may cast a shadow on the outlook for the stock market, dampening the sales of investment-type insurance and leading to higher surrender rates.
On the other hand, premiums from protection-type insurance are forecast to grow by 2% because sales of health insurance remain robust. The COVID-19 pandemic has significantly heightened risk awareness and sparked a surge in demand for health insurance coverage. This trend is further fuelling insurers’ marketing efforts to promote protection-type products under IFRS 17.
Overall, the life insurance market in South Korea is projected to decline, with premium income expected to decrease by 5.4% to KRW125.5tn ($92.8bn) in 2023. When retirement annuity premiums are excluded, the rate of projected decrease further deepens to 10.8%.
