"Already 2 Trillion"... Insurance Companies Struggle to Increase Capital Again This Year

Mirae Asset Life Issues 300 Billion Subordinated Bonds
Hyundai Marine & Fire Confirms 350 Billion Increase Next Month

[Asia Economy Reporter Oh Hyung-gil] The scale of capital increases by insurance companies has already exceeded 2 trillion won this year. With many companies recently experiencing a decline in financial soundness, it is expected that the number of insurers undertaking capital increases will significantly rise in the second half of the year.

In the market, there is an interpretation that this trend is due to the fact that preemptive financial soundness management has become important with the implementation of the new International Financial Reporting Standards (IFRS17) and the new Solvency Capital Requirement system (K-ICS) in 2023, while systems introduced by financial authorities such as co-reinsurance have not functioned effectively. It is also observed that there is an intention to raise funds at a low cost before interest rates rise again.

According to the insurance industry on the 29th, Mirae Asset Life Insurance will issue 300 billion won worth of subordinated bonds on the day, with Samsung Securities and Hana Financial Investment as lead underwriters. The initial plan was for 150 billion won, but it was doubled.

A representative from Mirae Asset Life Insurance explained, "The fact that we were the first in the industry to receive ESG (Environmental, Social, and Governance) certification was a key factor," adding, "Investment institutions such as pension funds have increased demand for ESG investments, and investors showed great interest in ESG bonds, leading to the decision to increase the issuance."

The funds will be used entirely for operating capital and are expected to raise the Risk-Based Capital (RBC) ratio. Mirae Asset Life Insurance's RBC ratio stood at 224.7% at the end of last year, down 17.6 percentage points from the previous year. The company expects this capital increase to improve the ratio to 252.7%.

Hyundai Marine & Fire Insurance is also issuing subordinated bonds for the first time in four years.

The day before, Hyundai Marine & Fire Insurance announced that it had finalized the issuance scale at 350 billion won, increasing by 100 billion won from the initially planned 250 billion won. Hyundai Marine & Fire Insurance is also aiming to raise its RBC ratio, and if the bond issuance is completed as expected, the RBC ratio is anticipated to rise from 190.1% at the end of last year to 201.7%, an increase of 11.6 percentage points.

Meritz Fire & Marine Insurance successfully issued 210 billion won worth of subordinated bonds on the 12th. KB Insurance, which is considering issuing 200 billion won worth of subordinated bonds within the first half of the year, plans to raise a total of 800 billion won in capital by the second half. KB Insurance's RBC ratio deteriorated by 12.7 percentage points from 188.5% in 2019 to 175.8% last year.

Fubon Hyundai Life Insurance also plans to complete a capital increase of 600 billion won as early as the first half of the year.

The main reason insurers are consecutively raising capital is the significant impact of IFRS17. With the implementation of IFRS17, all interest that must be returned to policyholders is calculated as liabilities, making a decline in the RBC ratio inevitable. Under the Insurance Business Act, insurers must maintain an RBC ratio of at least 100%, and financial authorities recommend maintaining it above 150%.

There are also limited alternatives to managing financial soundness other than capital increases. In June last year, financial authorities revised and implemented insurance supervision regulations to allow risk premiums and savings premiums to be retroceded to reinsurers. This enables sharing of interest rate risk with reinsurers, reducing liability burdens, but so far, only ABL Life and RGA Reinsurance have utilized this.

An industry insider explained, "Co-reinsurance is burdensome not only because of cost but also because insurers have to disclose all their risks," adding, "Since subordinated bond issuance can be carried out relatively quickly, it is the preferred method."

This content was produced with the assistance of AI translation services.