Korea Insurance

Research evidence excerpt

J P M O R G A N

Asia Pacific Equity Research

15 September 2026

Korea Insurance

Higher yield trade looks mature; focus shifts to balance

sheet risk

Korea’s 10-yr treasury yield has risen to 4.59%, up 1.21%p YTD. Recent investor

feedback suggests higher yields have become a key investment thesis for Korean

insurers, given their duration mismatch. In our view, this trade is now largely priced

in. We think the focus should shift to B/S risk across three areas. First, solvency capital

remains vulnerable under rising yields, as larger rate moves can pressure duration

matching and expose convexity risk on the core capital. Second, lapse risk is one of

the largest components of insurance risk. A higher risk-free rate tends to correlate with

higher lapse rates, raising the risk of tougher lapse charges, including shock scenarios,

and higher required capital. Third, we see concerns around CSM quality. Recent

disclosures show persistency ratios at only 39-57%, just four years after policy sales.

While the debate among investors has focused on the UFR level and LLP extension,

we are not convinced that free cash flow can be sustained for long enough to support

current CSM balances and new business CSM. Hence, we see greater risk for less well

capitalised insurers such as Hanwha Life and Hyundai M&F, despite their strong

share price rallies. We prefer DB Insurance, SGI and Samsung Life.

Available capital. We think rising yields are now likely to put pressure on

available capital. As insurers move towards closer duration matching between

liabilities and assets, the rise in yields is unlikely to be positive for core capital.

Duration matching conceptually works best when rate moves are smaller and

spread over a longer period. Under a scenario of sharp rate moves over a short

period, convexity risk can emerge in asset liability management (ALM),

alongside potential short-term liquidity pressures. Based on 1H26 disclosures,

a 100bp rise in interest rates would reduce K-ICS ratios by 7%p on average.

Following the yield curve steepening, we expect a negative available capital

movement in 3Q26.

Required capital. Korean insurers’ solvency disclosures do not provide risk

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