Following banks, insurers are also raising the bar on credit loans starting this month. The move is a follow-up measure prompted by financial authorities' calls for stronger household debt management. As demand for "debt-fueled investment" has spread to the insurance sector amid a booming stock market, insurers are moving to comprehensive management, cutting credit loan limits and successively halting new mortgage lending.
According to the financial industry on the 8th, Kyobo Life reduced its credit loan limit from 60 million won to 50 million won as of the 1st of this month. Tongyang Life tightened its credit loan extension conditions, requiring repayment of at least 20% of the loan principal to be eligible for a maturity extension. "New loans have already been suspended," a company official said. "We added the extension conditions this month to manage volume for existing loans only."
Samsung Fire & Marine Insurance also suspended new handling of some credit loan products this month, and Hanwha Life is reviewing additional management measures, including adjustments to credit loan limits.
These measures are interpreted as a follow-up response after financial authorities summoned insurers last month. On the 25th of last month, the Financial Services Commission (FSC) called in Kyobo Life, Hanwha Life, Heungkuk Life, Tongyang Life, and Samsung Fire & Marine Insurance to review their household loan management plans. At the time, authorities were known to have intensively examined trends in credit loans and policy loans as well as each company's management plans. "The intent was for authorities to have each company prepare its own management measures rather than imposing additional uniform regulations," an insurance industry official said. "We are reviewing measures to comprehensively manage credit loans, policy loans, and mortgages."
Indeed, household loans in the insurance sector have returned to an upward trend. According to the FSC, insurance-sector household loans fell by 400 billion won in April but rose by 900 billion won in May, the largest increase since July 2021. The cumulative increase for January through May this year also reached 1 trillion won, in contrast to the annual decrease of 1.9 trillion won last year. The industry attributes this to increased investment demand using credit loans and policy loans amid the recent stock market rally.
Following credit loans, policy loans, which account for a significant portion of insurers' lending, have also come under management. Policy loans are products that allow borrowing against a policy's surrender value. They were called "recession-type loans" during economic downturns, but there have been indications that they are increasingly being used as funds for stock investments recently. The outstanding balance of policy loans at 10 major life and non-life insurers rose from 54.9395 trillion won at the end of last year to 55.4612 trillion won in March this year, and further increased to 55.8872 trillion won by the end of May.
In April, following financial authorities' calls for risk management, insurers already lowered the maximum policy loan limit from around 90-95% of the surrender value to around 80-85%, a reduction of about 10 percentage points. Samsung Fire & Marine Insurance suspended policy loan handling for some low-surrender-value products this month, including "Super Insurance" and "First Class Low Surrender Value Type," and Hanwha Life is reportedly reviewing measures for managing policy loans.
However, further limit reductions carry considerable burdens. Because policy loans are funded by surrender values, they serve as a source of financing for policyholders in need of emergency funds. "Policy loans are a representative recession-type loan, so significantly reducing the limit could lead to more cases of policy cancellation," an industry official said. "We agree on the need for additional management, but we are carefully reviewing the scope and method of adjustment."
Insurers are also successively reducing mortgage supply. Tongyang Life decided to suspend new handling of apartment mortgage loans this month. Samsung Life suspended mortgage applications through non-face-to-face channels until the end of next month, and Samsung Fire & Marine Insurance temporarily suspended both face-to-face and non-face-to-face mortgage handling. Hanwha Life and NH NongHyup Life have also suspended new mortgage handling. Insurers are expected to operate mortgage supply conservatively in the second half of the year as well.
Institutional improvements to preempt the concentration of household loans in real estate are being pursued in parallel. Financial authorities are pushing a plan to slightly raise insurers' mortgage risk weights starting at the end of this September. The key is to increase the capital burden required to handle mortgages by raising the risk weight for the 60-80% loan-to-value (LTV) range from the current 3.5% to 4.0%.
This revision is a follow-up to the "Productive Finance Capital Regulation Improvement Plan" announced in April. The intent is to increase the capital burden required for insurers to handle mortgages while expanding incentives to invest in productive sectors. "The soundness impact from the risk weight adjustment is limited," a financial authorities official said. "It is meaningful in laying the groundwork for insurers' funds to flow more smoothly into productive sectors."
