If financial authorities and the Korea Deposit Insurance Corporation proceed with raising deposit insurance premium rates as currently planned, it is estimated that the property and casualty (P&C) insurance industry will face an additional annual burden of approximately 500 billion won, while the life insurance industry will face a burden of over 1 trillion won. In particular, the life insurance industry is expected to see its actual burden increase significantly as the reserve deduction effect under the target fund system disappears.
According to an internal simulation by the insurance industry on the 13th, if P&C and life insurers currently subject to a 0.15% deposit insurance premium rate apply the rate-increase proposals from research commissioned by the Deposit Insurance Corporation, their burden will increase substantially. The research report proposed raising the deposit insurance premium rate to 0.5% for the P&C industry and 0.4% for the life insurance industry. Currently, both life and P&C insurers are subject to a 0.15% rate.
In the case of 23 P&C insurers with deposit insurance coverage, excluding the International Monetary Fund (IMF) special contribution, they paid 250 billion won in deposit insurance fees last year (an average of 10.8 billion won per company). Under the same conditions, if the rate is raised to 0.5%, the P&C industry's fee burden will increase by 580 billion won to 830 billion won (an average of 36 billion won per company) compared to the current level.
In particular, the life insurance industry faces a sharp rise in payable fees as the reserve deduction under the target fund system is set to sunset starting next year. The increased premium rates will take effect from 2028. The target fund system is a mechanism that sets a pre-determined target size for reserves to cover unexpected losses of the Deposit Insurance Fund; once the fund's reserve level reaches this target, deposit insurance premiums paid by financial institutions are reduced. Currently, only the life insurance industry receives this deduction among all sectors.
The 22 life insurers with deposit insurance coverage also paid 280 billion won in fees last year (an average of 12.7 billion won per company), excluding the IMF special contribution. However, if the rate is raised to 0.4%, this amount will increase to 1.4 trillion won (an average of 63.6 billion won per company) under identical conditions. This represents an additional burden of approximately 1.12 trillion won compared to the current level. Converted to a per-company average, P&C insurers would need to pay an additional 25.2 billion won, while life insurers would pay an additional 50.9 billion won. However, significant differences in payment amounts between large and small-to-mid-sized companies are expected in practice.
Life insurers, whose overall sector burden is increasing significantly, are taking this matter seriously. This is because the average annual fee payable by life insurers exceeds twice that of P&C insurers. An increase in deposit insurance fees of around 50 billion won annually does not merely result in higher costs but also impacts Contractual Service Margin (CSM), a key indicator for insurers and a source of future profits. With the introduction of new accounting standards (IFRS17), if future cash outflows increase, it inevitably affects the valuation of insurance liabilities; under all other conditions being equal, CSM may decrease by the amount of increased future cash outflows.
Most importantly, the burden on financial soundness increases. If the valuation of insurance liabilities rises due to higher deposit insurance fees, available capital may decrease. Under identical conditions, a reduction in available capital leads to a decline in the solvency margin ratio (K-ICS). The insurance industry is already under considerable pressure regarding soundness management but fears that it may soon be forced to focus solely on financial stability rather than securing new contracts or investing in new businesses. In particular, for small-to-mid-sized insurers vulnerable in financial management, the immediate increase in fee burden itself acts as a factor pressuring profitability.
A source at an insurance company stated, "Insurers are already devoting significant energy to soundness management, and it is clear that the burden will only grow heavier going forward." The source added, "Raising deposit insurance fees will ultimately undermine medium- to long-term growth potential and capital efficiency, inevitably having a negative impact on profitability and corporate valuation."
in FINANCE
