S. Korean insurers' investment return edges down in 2014

South Korean insurance companies saw their investment returns inch down in 2014 from the previous year due to persistent low interest rates, data showed Thursday.

The investment return of local life and non-life insurers averaged 4.4 percent last year, down 0.1 percentage point from a year earlier, according to the data by the Financial Supervisory Service.

Last year, the insurers earned a combined 1.5 trillion won ($1.36 billion) from investments in bonds and other assets, compared with 700 billion won the previous year.

Local insurance firms have enjoyed an increase in their assets but faced difficulties in boosting their returns from investments because of the low interest trend.

The data also showed their so-called assumed interest rate standing at 4.8 percent in 2014, compared with 5.0 percent posted a year earlier.

Consequently, their interest margin, or the difference between the investment return and the assumed interest rate, stood at a minus 0.4 percentage point last year, showing that local insurance firms still faced a negative interest margin.

The assumed interest rate, similar to a bank deposit rate, serves as a benchmark for designing a variety of insurance products, especially those that are interest rate-pegged.

Local insurers have been slashing their assumed interest rate in tandem with falling market rates in order to improve their negative interest margin.

The Bank of Korea, the country's central bank, slashed its base rate by a combined 0.5 percentage point last year.

In March, the central bank trimmed the rate by another quarter percentage point to a record low of 1.75 percent.

Meanwhile, the total amount of assets under their management stood at 673.4 trillion won as of December, up 13.6 percent, or 80.7 trillion won, from a year earlier, the data showed. (Yonhap)