Insurance Companies with Worsening Capital Soundness... Busy Raising Funds

As interest rates rise, the capital soundness of domestic insurance companies has worsened further this year.

With the introduction of the new accounting standard IFRS17 (Insurance Liabilities Fair Value Measurement) starting next year, there is a concern that companies with poor financial conditions could be forced out of the market in the worst-case scenario, prompting insurers to urgently increase their capital.

According to the industry on the 2nd, most insurance companies that announced their first-quarter results this year saw a decline in their Risk-Based Capital (RBC) ratios. The RBC ratio is an indicator used to measure the financial soundness of insurance companies. The Insurance Business Act requires maintaining it above 100%, and the Financial Supervisory Service generally recommends keeping it above 150%.

KB Insurance and Hanwha Life Insurance had RBC ratios around 160% at the end of the first quarter this year, and although NH Nonghyup Life Insurance has not yet disclosed its figures, its ratio plummeted from 210.5% in the previous quarter to around 150% this quarter, indicating a need for capital increase.

The decline in insurers' RBC ratios is due to the rise in interest rates, which reduced available capital that serves as equity capital. The valuation gains on bonds classified as available capital significantly decreased, and dividend payments also increased, worsening the overall financial condition. Especially with the introduction of IFRS17 next year, liabilities will have to be measured at fair value instead of cost, raising concerns about further deterioration in soundness.

In response to the worsening financial soundness indicators, insurance companies are rushing to increase their capital. KB Insurance recently sold five buildings?including the Hapjeong Building in Seoul, buildings in Guri and Suwon in Gyeonggi Province, a building in Daegu, and a building in Gumi, North Gyeongsang Province?to a domestic asset management company. The total sale price is reported to be around 500 billion KRW. This move aims to improve financial indicators by raising capital even through real estate sales.

NH Nonghyup Life Insurance conducted a paid-in capital increase of about 600 billion KRW, and Meritz Fire & Marine Insurance, DGB Life Insurance, Hanwha Life Insurance, Hanwha General Insurance, NH Nonghyup Life Insurance, and Heungkuk Life Insurance have issued or announced plans to issue hybrid capital securities or subordinated bonds.

Separately from efforts to improve their financial conditions, insurance companies are also expressing difficulties in policy responses to financial authorities. At an emergency meeting held on the 22nd of last month with the Financial Supervisory Service and about 20 insurance CEOs, the CEOs reportedly appealed for the FSS to devise measures, stating that changes in indicators make their companies appear worse regardless of their fundamentals.

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