Samsung, Kyobo, Hanwha Life Insurance See 4.9 Trillion Won Surge in Surrender Values in Q1

In the first quarter of this year, Samsung Life Insurance, Kyobo Life Insurance, and Hanwha Life Insurance paid out a total of 4.8986 trillion won in policy surrender values, marking a 16.3% increase compared to the same period last year. This signifies a reversal from the declining trend in surrender values seen since the end of 2023, with an increase observed for the first time in three years. It also suggests a growing financial burden for insurers, particularly those with a high proportion of savings-type insurance products. According to the insurance industry, as of February this year, the total surrender value paid by life insurers stood at 8.4778 trillion won, a 20.6% increase year-on-year.

Surrender value refers to the amount an insurance company pays back to a policyholder when a contract is terminated during the policy term. Surrender values for protection-type insurance increased by 8.1% to 154.7 billion won, while those for savings-type insurance rose by 23.2% to 533.5 billion won. Terminations were notably prevalent in products like cancer insurance, whole life insurance, and annuity insurance.

The increase in surrender values, representing money returned to customers who canceled their policies, is attributed to a booming stock market, where customers anticipate higher returns from stock investments compared to insurance. As the KOSPI index surged and approached the 8,000-point mark, a growing volume of insurance policies were surrendered to fund stock investments, leading to the first increase in life insurers' surrender values in three years.

For life insurers, the rise in surrenders of savings-type insurance products extends beyond simply increased payout amounts, posing a significant financial strain. Under the new International Financial Reporting Standard (IFRS17) framework, the Insurance Contract Margin (CSM), a key profitability indicator for life insurers, is influenced not only by new policy acquisition but also by assumptions regarding existing contract maintenance rates and lapse rates. Analyses suggest that a worsening lapse trend than anticipated could lead to adjustments in actuarial assumptions and place a burden on future profit recognition.

This flow of funds is partially reflected in the financial results of various financial groups. Shinhan Life's net profit for the first quarter decreased by 62.1 billion won year-on-year to 103.1 billion won, while Shinhan Investment Corp. saw its profit surge from 107.9 billion won to 288.4 billion won. Similarly, KB Life's net profit declined from 86.9 billion won to 79.8 billion won, whereas KB Securities' profit increased from 179.9 billion won to 347.8 billion won.

Alongside policy surrenders, the trend of policy loans, which are secured by surrender values, is also on the rise. In March alone, policy loan limits increased by approximately 500 billion won, prompting financial regulators to request major insurance companies to manage their policy loan limits.

However, some view the increase in surrenders as a temporary phenomenon driven by the stock market boom. The Korea Insurance Research Institute noted, 'In the past, there have been instances of insurance surrenders when stock or virtual asset markets were booming.' The institute also advised, 'Insurers need to expand investment gains and secure variable insurance policyholders to partially offset the burden from increased surrender values.'