South Korea: Life insurers see first negative spread in over 70 years
Source: Asia Insurance Review | Dec 2019
South Korean life insurers suffered negative spread in June, the first such experience for the industry since it started over 70 years ago, raising concerns that the companies could chalk up more losses as they sold more coverage.
According to data submitted by the Financial Supervisory Service (FSS), life insurance companies recorded a negative spread of 0.2 percentage point as at the end of June, reported Pulse News.
The negative spread arose because life insurance companies’ operating yield had plunged due to a prolonged low interest rate environment and the economic slowdown while they still had to make interest payments to policyholders with high-interest fixed premium contracts. Industry insiders said that if life insurers continue to sell products under the current economic conditions, they would face snowballing losses.
FSS data showed that life insurers’ average interest payment to policyholders in the first six months of this year was 4.3% while their annual investment yield stood lower at 4.1%. The interest rate margin first fell to zero territory two years ago. A