Life insurers have reduced their holdings of government bonds and increased their stock positions over the past year. Life insurers typically manage portfolios centered on safe assets such as government bonds, but they appear to have raised their stock share as insurance revenue worsened recently. Non-life insurers are not disclosing itemized investment statuses such as stocks and government bonds.
According to the Korea Life Insurance Association on the 4th, the stock holdings of 22 life insurers operating in Korea totaled 177.9388 trillion won as of the end of May this year, about four times higher than a year earlier (44.9981 trillion won).
Among the three major life insurers, Samsung Life Insurance recorded the largest increase in holdings. Samsung Life Insurance's stock holdings reached 168.7797 trillion won, up 354.2% from a year earlier (37.1639 trillion won), the highest among life insurers. Hanwha Life Insurance(088350) stood at 3.9964 trillion won, and Kyobo Life Insurance at 3.1926 trillion won, up 15.5% and 20.3%, respectively, from the previous year.
In contrast, the holdings of government bonds by the 22 life insurers fell 11.1% to 312.2429 trillion won over the past year.
When insurers raise the share of risky assets such as stocks, they must set aside additional capital to maintain the key solvency metric, the Korea Insurance Capital Standard (K-ICS) ratio. The K-ICS ratio is a metric created to assess whether an insurer can properly pay claims when accidents occur.
Life insurers appear to be increasing stock investments to make up for deteriorating insurance revenue. The insurance profit and loss of the 22 life insurers in the first quarter of this year was 1.0706 trillion won, down 86.8 billion won from a year earlier.
Reducing the share of government bonds can widen the "duration gap," the mismatch between the maturities of assets and liabilities. Life insurers hold many long-maturity insurance contracts, so they hold long-term government bonds to align the maturities of assets and liabilities. This is to prevent a situation in which liabilities grow sharply faster than assets and weaken solvency.
If the share of government bonds declines, the average maturity of assets shortens, potentially widening the duration gap and amplifying solvency fluctuations due to interest rate changes. The financial authorities plan to review insurers' duration gaps this year and apply them as criteria in management status assessments next year.
The recent downturn in the stock market is also cited as a risk factor. The KOSPI hit a record high of 9,114.55 (at market close) on Jun. 22 but fell to 6,257.45 on the 3rd of this month. A life insurance industry official said, "Despite solvency risks, life insurers are increasing stock investments to expand revenue."