Hana Insurance's 'Financial Soundness' Falls Below Financial Authorities' Recommended Level

Hana Insurance's financial soundness at the end of the first quarter this year fell below the regulatory authority's recommended level.

According to the Financial Supervisory Service (FSS) on the 12th, Hana Insurance's solvency ratio, which was 153.1% at the end of last year, dropped by 23.8 percentage points to 129.3% in three months, falling below the authority's recommended level of 150%. The solvency ratio is a soundness indicator that evaluates an insurer's ability to pay insurance claims, calculated by dividing available capital by required capital (the amount the insurer must pay to policyholders). The minimum standard under the Insurance Business Act is 100%, and the supervisory authority recommends maintaining it above 150%.

Unlike KDB Life (129.2%) and MG Insurance (52.1%), which were below the regulatory standard at the end of last year, Hana Insurance is the only insurer whose solvency ratio fell below the recommended level within three months.

An FSS official said, "The fact that Hana Insurance did not apply for the transitional measures last year may have had an impact," adding, "It is highly likely that the issuance of hybrid capital securities in the second quarter of this year was due to this." Hana Insurance issued hybrid capital securities worth 100 billion KRW in May, so its solvency ratio may increase in June.

Transitional measures are a type of grace period to ease insurers' burdens caused by the introduction of the new solvency regime (K-ICS). They delay the application of K-ICS and must be applied for directly to the financial authorities by insurers. Until the K-ICS figures stabilize, the authorities defer related sanctions or extend deadlines for report and disclosure submissions in exchange for insurers submitting management plans to improve the K-ICS ratio, thus keeping them under the supervision of the financial authorities.

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According to the FSS, as insurers' required capital increased, the solvency situation at the end of the first quarter this year somewhat deteriorated.

The K-ICS ratio of insurers applying transitional measures as of the end of March this year was 223.6%, down 8.6 percentage points from 232.2% in the previous quarter. Over the past three months, required capital increased more than available capital, causing the solvency ratio to decline.

The K-ICS ratio for life insurers was 222.8%, down 10 percentage points from the previous quarter, while the K-ICS ratio for non-life insurers was 224.7%, down 6.7 percentage points during the same period.

As of the end of March this year, after applying transitional measures, K-ICS available capital was 262.2 trillion KRW, an increase of 600 billion KRW from the previous quarter. This was because other comprehensive income decreased by 10.3 trillion KRW due to an increase in insurance liabilities caused by a decline in discount rates, while adjusted reserves increased by 6.4 trillion KRW due to new contract inflows, and net income for the first quarter increased by 4.8 trillion KRW.

At the same time, K-ICS required capital was 117.2 trillion KRW, up 4.6 trillion KRW from the previous quarter. The FSS explained that this was mainly due to an increase of 1.9 trillion KRW in market risk such as equity risk and a 2.4 trillion KRW increase in operational risk following the implementation of basic assumption risk. Basic assumption risk is a new item included in operational risk in the solvency ratio calculation formula starting this year; the greater the difference between expected and actual insurance claims (experience variance), the higher this risk amount is recorded.

An FSS official said, "As of the end of March this year, the solvency ratio of insurance companies after applying transitional measures is 223.6%, maintaining a stable level," but added, "Since uncertainty in the financial markets continues to increase, we will thoroughly supervise to ensure that vulnerable insurers secure sufficient solvency."

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