"Insurers with Low RBC Ratios Vulnerable to Interest Rate Hikes, Must Boost Capital"

[Asia Economy Reporter Changhwan Lee] An analysis has emerged suggesting that insurance companies with low RBC (Risk-Based Capital) ratios during periods of interest rate hikes may experience deteriorating soundness and should proactively strengthen their capital.

According to the Insurance Research Institute's report titled 'Financial Market Volatility and Risk Management of Insurance Companies' on the 24th, while most insurance companies are expected to see an improvement in their actual solvency (soundness) due to long-term interest rate increases, some companies need to manage their solvency measured under the current RBC system in the short term.

The RBC ratio is an indicator used to measure the financial soundness of insurance companies. The Insurance Business Act mandates maintaining it above 100%, and financial authorities typically recommend keeping it above 150%.

As of the end of March, three life insurance companies and four non-life insurance companies had RBC ratios below 150%. The report emphasized that companies with low RBC ratios need to manage their solvency through capital expansion.

The report added that although financial authorities are expected to present buffering measures against RBC ratio declines caused by rapid interest rate hikes, which should improve RBC ratios, if interest rates continue to rise, there is a possibility that RBC ratios could worsen from current levels. Therefore, companies with low RBC ratios need to take proactive measures.

It also stated that companies with large interest rate reversals need to expand their long-term government bond holdings through replacement trading each time long-term interest rates rise, thereby reducing the scale of interest rate reversals.

Considering the possibility of a global economic downturn due to rapid policy rate hikes by major countries, the report argued that it is desirable from a conservative perspective to purchase mainly long-term bonds to hedge interest rate risk.

Jo Younghyun, a research fellow at the Insurance Research Institute, said, "The rise in interest rates, which has the greatest impact on insurance companies' solvency, is an opportunity that benefits insurance companies more than it harms them, provided the economy does not fall into excessive recession." He added, "Insurance companies should use this opportunity to improve interest rate reversals and enhance their capabilities in managing profits and capital volatility."

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