Premium Hikes Loom as Life Insurers Fight Market Forces

Consumers may be facing more hikes in insurance premiums as life insurance companies struggle against falling interest rates and an unstable stock market to stay profitable.

The assumed rate of interest - the rate the industry uses to calculate payouts for annuities - of 23 life insurance agencies averaged 7.8 percent from April 2000 through December, the Financial Supervisory Service said Monday. But the agencies had average returns of only 4.7 percent on their assets, resulting in a total of 2.5 trillion won ($1.9 billion) of losses, the regulator said.

The regulatory service allowed the insurers to raise premiums last month by lowering the state-regulated standard rate. The service said the standard rate may be lowered again as soon as next fall.

Until then the financial watchdog plans to encourage insurance companies to lower their assumed rates of interest.

"The government lowered the standard rate by 1 percent last month and premiums rose by 10 percent," a source from the service said. "If things don't improve in six months, we will consider another cut."

The watchdog also plans to ask insurance company executives this month to reorganize their products to minimize risks.

The government has also decided to lift investment restrictions in the second half of the year by allowing insurance companies to invest up to 10 percent of their total assets in overseas markets.

by Huh Gui-sik