Loans that South Korean policyholders take out against the surrender value of their insurance contracts rose by 2 trillion won ($1.4 billion) in the first half of this year, driven in part by borrowing to invest in stocks. Asset quality also deteriorated, with the delinquency rate on insurers' loan receivables climbing to 1.08%, the highest in about 15 years.
The Financial Supervisory Service said on the 28th that the outstanding balance of insurance policy loans stood at 72.8 trillion won at the end of June, up 2 trillion won from 70.8 trillion won at the end of December. The balance rose 1.4 trillion won from 71.4 trillion won at the end of March.
Insurance policy loans are loans available within the limit of a contract's surrender value. Because borrowers need no separate proof of income or credit review, the loans are often used when households need cash quickly. Analysts said the sharp increase in the first half, however, reflected borrowing to invest in stocks as market volatility rose.
Total lending by insurers, including policy loans, reached 266 trillion won at the end of June, up 1.9 trillion won from the previous quarter and 800 billion won from the end of December.
The delinquency rate on insurers' loan receivables rose 0.26 percentage points in three months to 1.08%. It was the first time the rate topped 1% since the end of September 2011, when it stood at 1.18%, a span of 14 years and nine months. The household loan delinquency rate fell 0.04 percentage points to 0.83%, while the corporate loan delinquency rate rose 0.41 percentage points to 1.21%.
Insurers' non-performing loan ratio, covering loans classified as substandard or below, also rose 0.18 percentage points from the previous quarter to 1.31%. The ratio for household loans fell 0.01 percentage point to 0.67%, while the ratio for corporate loans rose 0.27 percentage points to 1.62%.
"Delinquency rates and non-performing loan ratios in the insurance sector rose due to greater economic volatility and a delayed recovery," an FSS official said. "We will guide insurance companies to build up loss-absorbing capacity in line with rising delinquency rates and to strengthen asset quality management."
