As Insurers' Soundness Deteriorates... Financial Supervisory Service Urgently Summons CEOs

As interest rates have risen sharply, pushing the financial soundness indicators of insurance companies to risky levels, financial authorities have taken proactive measures, including urgently convening the CEOs of insurance companies.

According to the insurance industry on the 22nd, the Financial Supervisory Service (FSS) will hold a meeting of life and non-life insurance company CEOs in the afternoon, chaired by Senior Deputy Governor Lee Chan-woo. The meeting aims to assess the situation of the insurance industry, which is facing an emergency in defending the RBC ratio (Available Capital to Required Capital ratio) amid the recent rapid rise in interest rates.

As of the end of last year, the average RBC ratio of insurance companies was 246.2%, down 8.3 percentage points from the end of the previous quarter. This marks a decline for two consecutive quarters following the third quarter of last year. The RBC ratio is an indicator used to measure the financial soundness of insurance companies.

The Insurance Business Act mandates maintaining the RBC ratio above 100%, and the FSS generally guides companies to keep it above 150%. With interest rates rising further this year, there is a possibility that the RBC ratio of insurance companies as of the end of the first quarter could fall by more than 30 percentage points compared to the end of last year.

If the current trend of rising interest rates continues, there could be an increasing number of insurance companies whose RBC ratios fall below the legal minimum.

As of the end of last year, MG Non-Life Insurance was the only company among all insurers with an RBC ratio below the legal standard, at 88.3%. The Financial Services Commission designated MG Non-Life Insurance as a financially distressed institution.

Companies such as Heungkuk Fire & Marine Insurance (155.4%), DB Life Insurance (157.7%), Heungkuk Life Insurance (163.2%), KDB Life Insurance (168.9%), and AXA Non-Life Insurance (169.7%) also had relatively low RBC ratios.

At the meeting, CEOs are expected to express difficulties, stating that although they are defending the decline in RBC ratios through bond reclassification, issuance of new capital securities, and subordinated bond issuance, the burden of capital expansion will become excessive if interest rates continue to rise.

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