Insurers are divided over their capacity to pay dividends, complicating the calculus for the industry and investors alike. Surrender-value reserves across the sector swelled from 34 trillion won at end-2023 to 58 trillion won in the first quarter of this year. [Created using Gemini]
Insurers are divided over their capacity to pay dividends, complicating the calculus for the industry and investors alike. Surrender-value reserves across the sector swelled from 34 trillion won at end-2023 to 58 trillion won in the first quarter of this year. [Created using Gemini]

Even as bank stocks draw fresh attention as dividend plays following the introduction of a separate tax rate on dividend income, some of South Korea's leading insurers have been unable to resume dividend payments for up to four years — despite posting solid profits. The culprit is a legal reserve requirement introduced alongside new accounting rules, which forces insurers to set aside funds to cover potential mid-term policy surrenders. Those so-called surrender-value reserves have grown more than 70 percent in the past two years and three months, and the industry has yet to reach a consensus on how to address the problem.

Profits on the books, but the money can't be touched

Surrender-value reserves held by life and non-life insurers combined stood at 58.12 trillion won ($37.9 billion) at the end of March, up more than 5 trillion won in just three months from 53.11 trillion won at end-2025, according to the Financial Supervisory Service's financial statistics system. The pace of accumulation has been steep: reserves totaled 34 trillion won at end-2023 and 38 trillion won at end-2024, meaning they surged by nearly 15 trillion won in 2025 alone.

Surrender-value reserves are a statutory reserve that insurers must build up in advance to ensure they have enough funds to refund policyholders who cancel their coverage early. The requirement took effect in 2023 alongside the adoption of the new international accounting standard IFRS 17.

The industry's concern is that these reserves count as profit on paper but cannot be used to fund dividends. The more policies an insurer sells, the larger the reserves it must set aside. In practice, a company can only pay dividends if its earnings grow faster than its reserve obligations — leaving only the surplus available for distribution. Samsung Life, Samsung Fire and DB Insurance have managed to keep paying dividends precisely because their earnings exceed the burden of reserve accumulation.

Such companies are the exception, however. Hanwha Life and Hyundai Marine & Fire Insurance, both of which had maintained consistent dividend payments, suspended them starting with their 2023 and 2024 fiscal-year results, respectively.

A divided industry, a divided debate

Insurers have repeatedly urged financial regulators to ease the reserve accumulation burden, but the industry has been unable to speak with one voice.

For companies with ample capital that have kept paying dividends, there is little urgency. For those that have suspended payouts despite turning a profit, it is an existential issue. "To pay dividends you need to run the business well, but right now every new policy you sell adds to the reserves you must hold, pushing dividends further out of reach," an official at one insurer said. By contrast, some companies with sufficient dividend capacity say the reserve requirement has had no impact on their shareholder returns.

Critics also point to a double burden: the reserves work against insurers under the new capital-adequacy metric known as basic capital K-ICS, or the Korea Insurance Capital Standard solvency ratio, set to be introduced next year, squeezing both dividends and financial soundness at once. A competing view holds that overheated sales competition is the more fundamental problem. Because aggressive new-policy campaigns — in which agents are paid commissions upfront — are the real driver of reserve growth, easing the rules without addressing that behavior could intensify competition further and ultimately harm consumers, cautious voices argue.

Smaller and mid-sized insurers feel the strain most acutely. "Large insurers have multiple channels for generating profit and expanding capital, but for smaller companies, reserve accumulation directly affects capital ratios and business strategy," an official at a mid-sized insurer said.

With the industry failing to coalesce around a unified position, regulators have little incentive to act quickly. "We are listening to industry views, but whether companies pay dividends is not a direct consideration for us," a financial regulatory official said, signaling a cautious stance.

An insurance expert from academia said the structural link is clear. "It is unambiguous under the current regime that rising reserves reduce distributable profit," the expert said. "But it is worth re-examining whether these reserves truly represent capital that cannot be paid out as dividends, and whether the tax treatment is appropriate."


psj@heraldcorp.com