"Hurry Before Interest Rate Hikes"... Insurance Companies' Capital Expansion Relay

Capital Increase Expected to Exceed 3 Trillion This Year
Subordinated Bond Issuance in Full Swing
Active Use of ESG Bonds

[Asia Economy Reporter Oh Hyung-gil] Insurance companies appear to be rushing to increase capital amid the possibility of interest rate hikes in the second half of the year. They are actively utilizing ESG (Environmental, Social, and Governance) bonds in line with the recent trend of ESG management while replenishing their coffers before incurring expensive interest costs.

According to the insurance industry on the 23rd, KB Life will issue subordinated bonds worth 70 billion KRW on the 24th. This is the second capital increase this year following May. In the demand forecast conducted on the 17th, 168 billion KRW was attracted, resulting in a positive outcome. In May, they also successfully issued subordinated bonds worth 130 billion KRW.

KB Life has recently been aggressively expanding its insurance sales, leading to an increase in new contracts. This has resulted in higher business and commission expenses, causing the Risk-Based Capital (RBC) ratio to decline. In the first quarter of this year, the RBC ratio sharply dropped by 34.7 percentage points compared to the previous quarter, barely exceeding the financial authorities' recommended standard at 153.7%.

With the two subordinated bond issuances, the RBC ratio is expected to improve to around 180%. KB Life plans to use these funds for new contract-related business expenses, strengthening investment activities, and investing in new digital-related businesses.

Fubon Hyundai Life is also planning to issue its second subordinated bonds this year next month. They plan to issue 95 billion KRW through a demand forecast on the 7th and issue the bonds on the 13th.

Kyobo Life is preparing to issue subordinated bonds worth up to 500 billion KRW next month. Next year, they also plan to refinance by issuing $500 million worth of innovative capital securities overseas. Notably, the subordinated bonds to be issued this time will be in the form of ESG bonds, with funds raised allocated to environmental or social sectors to contribute to realizing social value.

Last month, NH Nonghyup Property & Casualty Insurance raised external capital for the first time in five years. They successfully issued subordinated bonds worth 100 billion KRW, raising the RBC ratio from 177.9% at the end of the first quarter to the 190% range.

The scale of capital increases by insurance companies this year is expected to exceed 3 trillion KRW. Subordinated bonds alone have already surpassed 2 trillion KRW.

DB Insurance issued subordinated bonds worth 500 billion KRW, and KB Insurance (379 billion KRW), Hyundai Marine & Fire Insurance (350 billion KRW), Mirae Asset Life (300 billion KRW), and Meritz Fire & Marine Insurance (210 billion KRW) have also issued bonds. Additionally, Fubon Hyundai completed a paid-in capital increase of 458 billion KRW targeting its major shareholder, Fubon Life, and Carrot General Insurance also carried out a paid-in capital increase of 100 billion KRW.

Insurance companies have been increasing capital for several years to proactively improve financial soundness ahead of the implementation of the new International Financial Reporting Standards (IFRS 17) in 2023. However, the pace seems to be accelerating due to concerns that bond issuance could become burdensome amid rising interest rates. Expanding the issuance of capital securities such as subordinated bonds leads to higher interest expenses with rising rates, which reduces profits.

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