The revenue from savings insurance of life insurance companies has sharply decreased. This is believed to be because life insurance companies are focusing on selling protection products that are favorable for performance improvement following the implementation of the new accounting standards (IFRS 17).
According to a report by NICE Investors Service on the 16th, the revenue from savings insurance of 11 major life insurance companies, including Samsung Life Insurance, Hanwha Life, and Kyobo Life Insurance, was 6.1976 trillion won in the first quarter of this year. This is a 17.6% decrease compared to the same period last year (7.523 trillion won). The proportion of total revenue has also significantly decreased. The ratio of savings insurance to the total primary insurance premium in the general account of life insurance companies was 19.9% in the first quarter of this year, a decrease of 7 percentage points compared to the same period last year.
The general account is a product in which the insurance company directly manages the revenue with money collected from subscribers, while also bearing the risk. This is the opposite concept of special accounts like variable insurance, where the subscriber bears the risk according to investment performance. Most insurance products fall under the general account.
Under the IFRS 17 accounting system implemented from the end of 2023, savings insurance is recognized as a liability immediately, unlike previous standards. Savings insurance primarily allows subscribers to recover principal and interest if they do not receive compensation due to an accident until maturity. This contrasts with protection insurance, which does not return benefits at maturity. If the sales of savings insurance increase and result in accounting losses, the core indicator of the insurance company, the solvency margin ratio (KICS), will also decrease.
Currently, increasing the sales of protection insurance works favorably for the contract service margin (CSM) amortization under accounting standards. CSM amortization refers to the process by which an insurance company recognizes future expected revenue over a specified period. For example, if an insurance contract is valid for ten years, it means dividing the revenue earned over ten years and reflecting it in accounting.
For this reason, life insurance companies are eager to expand the sales of protection insurance. In the first quarter of this year, the primary insurance premium collected by life insurance companies from protection products was 14.6833 trillion won, an increase of 12.3% from the same period last year. The ratio of protection products to the total primary insurance premium in the general account also increased by 0.6 percentage points compared to the same period last year, recording 47.2%.
An industry source noted, "The sales of savings insurance, which are recognized as accounting losses, can only act as a burden on the industry," and added, "Life insurance companies are gradually reducing the sales ratio of savings products for the sake of managing the KICS ratio."