Financial Supervisory Service Meets Insurance CEOs Facing Deteriorated Soundness Due to Interest Rate Hikes... What Was Discussed?

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[Asia Economy Reporter Changhwan Lee] As interest rates have risen sharply, pushing insurance companies' financial soundness indicators to risky levels, financial authorities have urgently convened insurance company CEOs to respond.

It is reported that the insurance company CEOs requested a temporary relaxation of regulations during the meeting.

According to the insurance industry on the 23rd, the Financial Supervisory Service (FSS) held a meeting of life and non-life insurance company CEOs yesterday afternoon, chaired by Senior Deputy Governor Chanwoo Lee. The meeting was held to assess the situation of the insurance industry, which is facing an emergency in defending the RBC ratio (Available Capital to Required Capital ratio) amid the recent sharp rise in interest rates.

As of the end of last year, the average RBC ratio of insurance companies was 246.2%, down 8.3 percentage points from the end of the previous quarter. It declined for two consecutive quarters following the third quarter of last year. The RBC ratio is an indicator used to measure the financial soundness of insurance companies.

The Insurance Business Act requires maintaining the RBC ratio above 100%, and the FSS generally guides companies to maintain it above 150%. With interest rates rising further this year, there is a possibility that insurance companies' RBC ratios as of the end of the first quarter could fall by more than 30 percentage points compared to the end of last year.

If the recent trend of rising interest rates continues, there is also a forecast that many insurance companies could see their RBC ratios fall below the legal minimum.

At the closed-door meeting, CEOs reportedly expressed difficulties, stating that although they are defending the decline in RBC ratios through bond reclassification, issuance of hybrid capital securities, and subordinated bonds, the burden of capital expansion will become excessive if interest rates continue to rise.

Furthermore, they reportedly proposed that even if the RBC ratio falls below 100%, the financial soundness improvement measures under the Insurance Business Act, such as timely corrective actions, be deferred, and that soundness regulations be applied flexibly until the end of the year.

As of the end of last year, MG Non-Life Insurance was the only company among all insurers with an RBC ratio below the legal standard at 88.3%. The Financial Services Commission designated MG Non-Life Insurance as a financially distressed institution.

Companies with relatively low RBC ratios included Heungkuk Fire & Marine Insurance (155.4%), DB Life Insurance (157.7%), Heungkuk Life Insurance (163.2%), KDB Life Insurance (168.9%), and AXA Non-Life Insurance (169.7%).

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