Samsung Life Insurance has warned that dwindling returns on its underlying assets are likely to curtail future dividend payments to policyholders, according to a business report released Tuesday.
The insurer disclosed in a filing with the Financial Supervisory Service (FSS) that a persistent negative margin structure in its existing participating insurance products will make it increasingly difficult to generate funds for future policyholder dividends. Samsung Life stated that, given its current asset management returns of 4% and an average interest rate of 7% paid annually on fixed-rate participating insurance contracts, “substantial losses are expected in participating insurance, making it difficult for surplus profits to occur,” according to a report by Yonhap News Agency.
The announcement comes as Samsung Life navigates scrutiny over its accounting practices, particularly related to the treatment of shareholder equity linked to its stake in Samsung Electronics. Financial Supervisory Service (FSS) Governor Lee Chan-jin indicated earlier this month that a preliminary conclusion regarding the accounting controversy had been reached, and that the FSS would soon formalize its position, aiming to normalize the practices in accordance with International Financial Reporting Standards (IFRS).
The FSS is expected to conclude its review of Samsung Life’s accounting next week, potentially bringing an end to the ongoing debate over the company’s handling of contractholder equity adjustments, a practice that has been a point of contention with regulators. The core of the dispute centers on whether to continue accounting for the equity as contractholder surplus, or to reclassify it as insurance liabilities under the new IFRS17 standards.
In February, Samsung Life reported a record net profit of 2.30328 trillion won for the previous year, a 9.3% increase from the prior year, marking its second consecutive year of exceeding 2 trillion won in net profit. The company attributed the results to improved profitability driven by new contract performance and solid earnings growth. Insurance service profit reached 975 billion won, a 79.8% increase year-on-year, boosted by expanded margins on high-yield health products and a reduction in reserve deficiencies. New contract insurance margin (CSM) totaled 3.0595 trillion won, with health CSM accounting for 75% at 2.031 trillion won. Total CSM at the end of last year stood at 13.2 trillion won. Investment gains also contributed 2.022 trillion won to the bottom line.
Despite the strong financial performance, the company’s outlook for future policyholder dividends remains uncertain. Chief Financial Officer Lee Wan-sam stated last month that proceeds from any future sale of Samsung Electronics shares would be factored into shareholder returns, consistent with the approach taken when determining last year’s dividend of 5,300 won per share, which included gains from the February 2023 sale of Samsung Electronics stock. Still, Lee also cautioned that the timing and scale of any future sales are difficult to predict, making it challenging to specify a dividend payout ratio.
Samsung Life also disclosed the details of its participating insurance contracts for the first time, revealing the negative margin structure. The company indicated it would strategically consider including any large-scale disposals of affiliated stock or non-recurring gains in dividend resources, apportioning them over an appropriate period.
