Life insurance firms suffer huge losses in overseas markets

Life insurance firms’ overseas branches saw their net losses snowball last year due to huge cost in operating businesses in foreign countries.

According to the Financial Supervisory Service, eight overseas units of three major life insurance companies ― Samsung, Korea and Kyobo ― reported a combined net loss of $16 million (18.2 billion won) in 2011.

Their losses increased by 22 percent compared to the figure of 2010, the FSS said.

“Though the profit from collecting insurance premiums increased by 32.3 percent, their cost for expanding businesses surpassed the earnings,” an FSS said.

He said the financial regulator will instruct insurance companies to sufficiently review business environments when they seek to make inroads into the overseas market.

Further, life insurance companies also reported poor performances in their stock investments through equity-linked insurance products.

Equity-linked insurance products, also known as variable insurance, invest part of customers’ premiums in the stock market.

According to the Korea Life Insurance Association, life insurance firms posted -12.87 percent in combined rate of return in their stock investments through the variable insurance products last year.

Among the big three companies, Samsung Life posted the lowest earnings rate of -10.39 percent. It stayed sixth in the rankings.

Korea Life and Kyobo Life saw the rate come to -6.28 percent and -6.94 percent, respectively, ranking second and third.

While Dongbu Life topped the list with an earnings rate of -4.42 percent, many firms posted rates of below -10 percent.

ING Life, which ranked 11th, posted a rate of -11.34 percent, followed by Allianz Lie with -12.96 percent, KB Life with -13.65 percent and Metlife with -14.06 percent.

With the stock market performing strongly again after the 2008 global financial crisis, there has been a sharp rise in demand for variable insurance products that invest heavily in securities for high returns and have insurance protection.

Most variable insurance products invest 80-95 percent of premiums in stocks and bonds, according to the life insurance association.

Last year, Kyobo Life launched new variable annuity insurance policies which guarantee the principal even if the investment return fails to grow.

The recent global stock market turmoil connected to the eurozone debt crisis is troubling many variable insurance subscribers. As their funds incur losses, they are wondering whether they should withdraw their subscriptions.

But insurance firms argue that short-term fluctuations don’t matter much for variable insurance.

By Kim Yon-se (kys@heraldcorp.com)