Korea insurers wrestle with duration mismatch on life books
Unable to hedge out the duration mismatch on their legacy guarantees, Korean insurers are turning to yield enhancement products in order to balance their life books
In South Korea – like in financial markets the world over – life insurance products with high guarantees have become a thing of the past. Falling investment yields, combined with market instability, have made it difficult for life insurers to make the same kinds of promises to their customers as they did before.
A low interest rate environment has not helped. In July, the Bank of Korea took the unexpected decision to cut its base interest rate from 3.25% to 3%, its first cut in three years
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