Dongyang Life Insurance has been found to have sold the most short premium life insurance among life insurance companies. Although it reduced the sales volume of 7-year premiums, it has not slowed down by reintroducing the 5-year premium product since the beginning of the year. It is making every effort to improve short-term revenue ahead of a sale.
Short premium life insurance is a product in which premiums are paid for 5 or 7 years, and if the contract is terminated in the 10th year after joining, 120% of the paid premiums are provided as a surrender benefit. If premiums are paid for 5 years, it is commonly referred to as 5-year premiums and for 7 years as 7-year premiums.
According to the Life Insurance Association on the 3rd, the new contracts for Dongyang Life Insurance's life insurance reached 910,826 from the first half of 2023 to the first half of last year, the highest among life insurance companies. The second place during the same period was Hanwha Life Insurance (889,561 contracts), the third was Samsung Life Insurance (728,407 contracts), and the fourth was Kyobo Life Insurance (434,017 contracts).
Even when looking only at the first half of last year, Dongyang Life Insurance sold 352,099 contracts of life insurance, surpassing Hanwha Life Insurance (329,044 contracts) to take the top spot. This accounted for about 19% of the total new contracts for life insurance (1,863,521 contracts) during the same period. Dongyang Life Insurance's life insurance sales volume was around 170,000 to 180,000 contracts until 2022. The following year, when the short premium life insurance craze began, the sales volume nearly doubled.
Previously, Dongyang Life Insurance reduced the refund rate for the 7-year premium from 124% to 118%, thereby decreasing the sales volume. This is because financial authorities recommended establishing the termination rate for short premium life insurance in the 10th year at over 30% under the new accounting system (IFRS 17), which shrank the profitability of the product.
Instead of reducing the 7-year premiums, Dongyang Life Insurance reintroduced the 5-year premium product (refund rate 124%) this month. This is interpreted as being advantageous for improving short-term revenue compared to 7-year premiums. The 5-year premium allows for concentrated collection of premiums over a shorter period, increasing investment management opportunities and enabling quicker recovery of business costs. However, after the premium payment is completed (after 5 years), there is no revenue generated, making the 7-year premium more advantageous in terms of long-term stability.
Some analysts suggest that this is a desperate measure to defend against worsening profitability. They state that applying conservative termination rates would reduce the core profitability indicator, the Contractual Service Margin (CSM), so the launch of the 5-year premium was made to uplift the CSM in the short term. Dongyang Life Insurance stated in a corporate presentation (IR) last November that it would reflect the principles proposed by financial authorities. It is reported that reflecting conservative assumptions would reduce Dongyang Life Insurance's CSM by about 400 billion won.
An industry insider noted, "If the CSM decreases due to the termination rate assumptions, it may lead to a situation where we need to fill the CSM through other sales routes," adding, "In terms of demand, the 5-year premium seems to be more advantageous than the 7-year premium because it has less burden in terms of premium expenditure."
Dongyang Life Insurance's cumulative net profit for the third quarter of 2024 was 265.7 billion won, a 22.2% increase compared to the same period last year. Of this, the insurance profit was 233.4 billion won, an increase of 27.2% compared to the same period last year.