Last Year, Financial Soundness of Insurance Industry Fell Again... Down 30%P Compared to Previous Year

[Asia Economy Reporter Song Seung-seop] The financial soundness of the insurance industry deteriorated at the end of last year.

According to the Financial Supervisory Service on the 14th, the RBC ratio of insurance companies last year was recorded at 246.2%. This is a decrease of 28.7 percentage points from 274.9% a year earlier. Compared to 254.5% in the previous quarter, it fell by 8.3 percentage points.

The RBC ratio is a representative indicator used to measure the financial soundness of insurance companies. It is calculated by dividing the available capital, which can cover losses due to risks, by the required capital, which is the amount of loss that occurs if the risk materializes. The Insurance Business Act stipulates that the RBC ratio must be maintained at 100% or higher.

The significant drop in the RBC ratio was due to a simultaneous decrease in available capital and an increase in required capital. Available capital decreased by 3.3 trillion won from 165 trillion won in the previous quarter to 161.7 trillion won in December last year. The rise in government bond yields caused a reduction of 800 billion won in valuation gains on available-for-sale securities, and the expected cash dividends shrank by 2.2 trillion won, which affected the capital.

On the other hand, required capital increased by 800 billion won to 65.7 trillion won during the same period. The main cause was an increase in credit risk amount due to a 13 trillion won rise in managed assets.

The financial authorities evaluated that the RBC ratio of insurance companies still significantly exceeds the standard (100%) for fulfilling insurance payment obligations. However, they also stated that they plan to strengthen soundness supervision by inducing proactive capital expansion and monitoring market indicators such as interest rates if there are concerns about vulnerabilities in the RBC ratio.