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Insurance Companies’ Reverse Margin Estimated to Reach All-time High This Year
A Fallout from Zero Interest Rate Policy
Insurance Companies’ Reverse Margin Estimated to Reach All-time High This Year
  • By Yoon Young-sil
  • March 30, 2020, 13:21
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South Korean insurers’ reverse margin is estimated to hit an all-time high of more than six trillion won this year with interest rates remaining at close to zero.

The Korea Insurance Research Institute announced on March 29 that South Korean life insurers’ reverse margin totaled 3.3 trillion won for the first three quarters of 2019. The institute explained that their average interest rate applied to policyholders was 4.22 percent whereas their rate of return from asset management stood at 3.5 percent.

The reverse margin has continued to increase for years. Specifically, it increased from 1.2 trillion won to 5.7 trillion won from 2015 to 2018. Their return from asset management dropped with interest rates falling and insurance products with a fixed annual interest of 5 percent to 6 percent, which were sold in quantity until the early 2000s, accounting for more than 40 percent of their sales.

In addition, those insurers’ return from asset management for this year is estimated to fall below 2 percent with the key rate already cut twice in 2019 and cut by half a percentage point in the middle of this month.