Financial Services Commission Chairman: "Non-exercise of Call Options in Insurance Industry, What Matters Is the Investor's Perspective"

Financial Services Commission Chairman Kim Ju-hyun delivers a congratulatory speech at the 'World Economic Research Institute - Woori Financial Group International Conference' held at the Shilla Hotel in Jung-gu, Seoul on the 4th. Photo by Song Seung-seop

Kim Ju-hyun, Chairman of the Financial Services Commission, recently stated that regarding insurance companies not exercising the call option for early redemption of hybrid capital securities, "What matters is not the authorities' stance but the investors' perspective."

On the 4th, after attending the World Economy Institute-Woori Financial Group International Conference held at the Shilla Hotel in Jung-gu, Seoul, Chairman Kim met with reporters and responded to a question about whether the financial authorities' market stabilization measures were ineffective by saying, "There are various opinions about breaking the convention," and explained, "If necessary, the call option can be exercised. If they are not going to exercise it, then why have a call option?"

Recently, the insurance industry has been deciding not to exercise the call option on hybrid capital securities. On the 2nd, Heungkuk Life Insurance did not exercise the call option on the $500 million (approximately 700 billion KRW) hybrid capital securities scheduled for the 9th. The next day, DB Life Insurance postponed the call option exercise date of 30 billion KRW scheduled for the 13th to May next year.

This raised concerns that the already fragile capital market might contract further. Insurance companies are typically regarded as major players in the bond market, and this decision delays bond redemption. Although hybrid capital securities are perpetual products, early redemption after five years has been considered a convention in the domestic financial market. It has been 13 years since early redemption was last made in Korea, with Woori Bank in 2009 being the last case.

This decision came after successive market stabilization measures by the government and financial authorities. Earlier this month, Chairman Kim met with the chairpersons of KB, Shinhan, Hana, Woori, and NH Financial Group and announced plans to provide liquidity supply and financial support amounting to 95 trillion KRW by the end of the year. Last month, an emergency macroeconomic financial meeting was held, deciding to expand the liquidity supply program to over 50 trillion KRW.

Chairman Kim reiterated, "It is more important how overseas investors perceive this," adding, "If outsiders think there is a problem, it cannot be helped." He also said, "We need to consider how outsiders view this, but it seems the insurance industry has not really thought about this. This is also a market that needs to be managed, so we need to think carefully about how to respond."

Meanwhile, the Financial Services Commission stated yesterday regarding DB Life Insurance's postponement of the call option exercise, "The investors in the relevant hybrid capital securities are a minority, and since these securities are not traded in the market, there is no impact on the bond secondary market," and added, "We will continue to monitor market conditions closely."

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