Korea Investors Service Downgrades Lotte Insurance Credit Rating, Citing Management Improvement Request

Reflecting FSC Measures... Financial Indicators Show Improvement

Korea Investors Service has downgraded the credit rating of Lotte Insurance. This decision reflects the recent management improvement request imposed by the financial authorities.

According to the investment banking (IB) industry on March 7, Korea Investors Service lowered the credit rating for Lotte Insurance's subordinated bonds from 'A-' to 'BBB+', and for hybrid capital securities from 'BBB+' to 'BBB', respectively. The negative outlook on the rating was also maintained.

This is interpreted as reflecting the Financial Services Commission's decision not to approve Lotte Insurance's management improvement plan submitted on February 28. On March 4, the Financial Services Commission escalated the prompt corrective action level for Lotte Insurance to a management improvement request, demanding stronger capital adequacy management.

Cho Youngtae, Senior Researcher at Korea Investors Service, stated, "The escalation to the prompt corrective action stage has increased risks in insurance operations, capital raising, and liquidity. If the management improvement plan is again disapproved, or if the deterioration of business and financial indicators expands to a significant level, we may consider an additional credit rating downgrade."

Nevertheless, Korea Investors Service analyzed that Lotte Insurance's overall financial indicators have improved compared to the previous year. Lotte Insurance's net profit last year more than doubled from the previous year, reaching 51.3 billion won. The K-ICS ratio, which had dropped to 120% at the end of March last year, rose to 159% by the end of the year. This was due to a reduction in required capital from lower risk assets and an increase in net assets resulting from higher interest rates. Researcher Cho explained, "Although the provisional figures for 2025 indicate that overall financial indicators are still below the industry average, they have shown improvement compared to 2024. Despite a deterioration in insurance profits due to worsened actual-to-expected interest rate differentials, investment profits such as retirement pension interest margins improved, leading to higher net income. Capital adequacy indicators also saw a slight improvement. However, since the company is the only one in the industry applying the exceptional model, further consideration of the impact of this exceptional model is needed when comparing with competitors."

Lotte Insurance, for its part, stated that this rating adjustment is a mechanical reflection. The company explained that, as normal operations are possible during the implementation period of the Financial Services Commission's management improvement request, its performance and financial fundamentals remain intact. Previously, the Financial Services Commission also announced, "During the implementation period of the management improvement request, Lotte Insurance will continue normal operations. Its solvency ratio remains above 100%, so insurance services such as claims payments and retirement pension management will be provided without disruption. Policyholders can use services with peace of mind."

In relation to this, a Lotte Insurance representative commented, "This rating adjustment is not a reflection of damage to our financial fundamentals, but rather an evaluation adjustment linked to the administrative actions by regulatory authorities. Our solvency level continues to improve," he said.

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