FSS Rates Lotte Insurance as "Weak" in Capital Adequacy

Subject to Prompt Corrective Action

Lotte Insurance has been included as a target for a management improvement recommendation after receiving a "weak" rating in the capital soundness category in the Financial Supervisory Service's management status evaluation.

According to the financial sector on May 26, the Financial Supervisory Service (FSS) assigned Lotte Insurance an overall rating of Grade 3 (average) and a provisional rating of Grade 4 (weak) in the capital adequacy category following its management status evaluation.

The FSS reached this assessment after thoroughly reviewing the company's soundness based on Lotte Insurance's regular inspection last year and a special inspection conducted between February and March this year.

Under the current system, if a company receives an overall rating of Grade 3 or higher and a capital adequacy rating of Grade 4 or lower in the management status evaluation, it becomes subject to the first stage of prompt corrective action, which is a management improvement recommendation.

The FSS has already reported the results of this evaluation to the Financial Services Commission (FSC). The FSC plans to finalize its response as early as next month at a regular meeting after reviewing Lotte Insurance's objections and other opinions.

However, if Lotte Insurance presents a concrete plan for substantial capital expansion, such as a paid-in capital increase, the initiation of prompt corrective action may be postponed.

Previously, Lotte Insurance attempted to redeem subordinated bonds worth approximately 90 billion won early, but the plan was scrapped due to regulatory intervention by the financial authorities.

According to the FSS, Lotte Insurance's risk-based capital ratio (K-ICS) at the end of last year was 154.6%, but this figure was calculated using a company-friendly exception model for the surrender rate of non-cancellable and low-surrender-value insurance policies. If the standard principle model is applied, the ratio drops to 127.4%. As of the end of March this year, the K-ICS ratio is also reported to be well below the regulatory guideline of 150%.

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