The average disclosed interest rate, a benchmark for setting insurance premiums in South Korea, has fallen again. Analysts expect premiums on savings-type policies and short-payment whole life insurance to rise by as much as 10% next year. With market rates climbing and interest burdens already growing, some warn that higher premiums would hit vulnerable households first.
The Financial Supervisory Service (FSS) set the average disclosed rate for 2027 at 2.25%, according to financial industry sources on the 29th. That is 0.25 percentage points below this year's 2.5% and the lowest level in four years, since 2023. The average disclosed rate is a lagging indicator calculated as a weighted average of the rates disclosed by individual insurers. A decline means insurers expect lower returns on their asset management.
Insurers set premiums by factoring in expected investment returns in advance, a figure known as the assumed interest rate. When the average disclosed rate falls, it triggers a chain of lower assumed rates, thinner insurer margins and higher premiums. If investment returns do not recover and premiums stay unchanged, insurers cannot pay the benefits promised to policyholders. The industry estimates that a 0.25 percentage point drop in the assumed rate translates into a 5% to 10% increase in premiums.
Major insurers have in fact held back from raising disclosed rates even as market yields rose. Samsung Life Insurance (032830.KS) lowered the disclosed rate on its savings policies to 2.28% in September from 2.33% in January, a decline of 0.05 percentage points. Hanwha Life Insurance (088350.KS) cut its rate to 2.18% from 2.22% over the same period. Both are below the 2.40% time deposit rate estimated by the Korea Insurance Development Institute for October. The direction runs counter to government bond yields, with the three-year Treasury yield jumping nearly 1.4 percentage points to 3.838% on Aug. 31 this year from 2.435% on Sept. 1 last year.
The benchmark rate disclosed by the Korea Insurance Development Institute, used mainly for interest-rate-linked products, stood at 3.8% in October, up 0.6 percentage points from 3.2% in February. That is the highest in two years and three months, since July 2024. While the benchmark rate has tracked market yields higher, insurers have held down their adjustment ratios and kept disclosed rates in place. For policyholders, that means paying more in premiums for the same coverage.
Savings-type policies and short-payment whole life insurance face the biggest impact. Indemnity and health insurance, as well as conventional whole life policies, are more sensitive to loss ratios and mortality rates than to interest rates. Auto insurance premiums may rise for separate reasons. The combined loss ratio at four insurers — Samsung Fire & Marine Insurance (000810.KS), Hyundai Marine & Fire Insurance (001450.KS), DB Insurance (005830.KS) and KB Insurance (002550.KS) — reached 84.7% for January through August, up 0.3 percentage points from a year earlier.
"Insurers have been preparing to raise premiums as loss ratios climb, and a lower average disclosed rate could strengthen their case for doing so," an industry official said.
Higher premiums do not translate directly into better earnings. Life insurers' net profit rose sharply in the first half of this year, but most of that came from investment gains, while profit from their core insurance business fell 26.2% from a year earlier. New life insurance contracts dropped 12.9% to 4,112,902, and surrender payouts in the January-May period rose 39.2% to 28.97 trillion won ($20.9 billion). Competition is intensifying in policies with no or low surrender value, which carry premiums 10% to 40% cheaper, as insurers try to stem policyholder defections. Some also expect a push to sell existing products before they are discontinued later this year.
