Default Ratio of Insurance Loans Rising
By Yoon Ja-young
Staff Reporter
The delinquency ratio of insurance loans is surging amid global capital market turmoil and the economic slowdown.
According to the Financial Supervisory Service (FSS), the delinquency ratio of loans given by insurance companies stood at 3.72 percent at the end of November last year, up 0.11 percentage points from two months ago.
The regulator attributed the rise to the surge in the delinquency ratio of household loans, which make up 71.6 percent of all insurance loans. The delinquency ratio of home loans went up by 0.12 percentage points to 3.31 percent.
While the insurance policy-backed loans saw the delinquency ratio rise 0.11 percentage points to 4.51 percent, mortgage-backed loans remained steady, with the ratio edging up just 0.01 of a percentage point to 0.69 percent. The rising delinquency ratio in insurance policy-backed loans poses a problem for subscribers since they won't get insurance money if they fail to pay back the loan. The interest rate on these loans is also much higher than bank loans.
Corporate loans extended by insurance companies were also facing a rising delinquency ratio. It was 4.75 percent in November, rising 0.07 percentage points from two months previously. Loans given to small- and medium-sized businesses (SMEs) or to project financing (PF) were going especially bad.
Despite a worsening delinquency ratio for insurance company loans, the financial regulator pointed out that the coverage ratio was relatively sound at 111.9 percent. It added that low-risk insurance policy-backed loans accounted for most of the increase in delinquency.
``With the recent economic downturn exerting pressure on the soundness of insurance company loans, insurers will be encouraged to closely monitor household and corporate loans and improve management of the various risk factors in those loans,'' the regulator said.
The total lending by insurance companies stood at 81 trillion won. Life insurance companies have given 67.7 trillion won, and non-life insurance companies 13.3 trillion won.