[Asia Economy Reporter Changhwan Lee] As market interest rates rise, the RBC (Risk-Based Capital) ratios of insurance companies are significantly declining this year. Some insurers have failed to meet the regulatory recommended level of 150%, and with the likelihood of further rate hikes in the second half of the year, there are concerns that some companies may fail to meet the legal minimum standard of 100% in the worst-case scenario.
According to the insurance industry on the 16th, the RBC ratios of insurers that disclosed their first-quarter results this year have generally dropped sharply.
Hanwha General Insurance's RBC ratio at the end of the first quarter was 122.8%, plunging 54.1 percentage points from the previous quarter, and NongHyup Life Insurance also fell to 131.5%.
During the same period, Heungkuk Fire & Marine Insurance's RBC ratio was 146.65%, down 8.7 percentage points from the previous quarter, and DB Life Insurance dropped 18.5 percentage points to 139.14%.
KB General Insurance's RBC ratio at the end of the first quarter was 162.3%, Hanwha Life Insurance was 161%, DB Insurance was 188.7%, and Hyundai Marine & Fire Insurance was 190.7%.
The RBC ratio is an indicator used to measure the financial soundness of insurance companies. The Insurance Business Act requires maintaining it above 100%, and financial authorities generally recommend a level above 150%.
The decline in RBC ratios is due to the recent sharp rise in market interest rates. When market interest rates increase, the prices of bonds held by insurers fall, reducing their capital and thus lowering the RBC ratio.
Earlier, Korea Ratings analyzed that a total of seven companies, including DGB Life Insurance, Hanwha General Insurance, NH NongHyup Life Insurance, Heungkuk Fire & Marine Insurance, DB Life Insurance, Heungkuk Life Insurance, and KDB Life Insurance, could see their RBC ratios fall below 150% this year.
As RBC ratios have dropped significantly, insurers are raising capital through issuing subordinated bonds and selling assets. According to Korea Ratings, insurers issued a total of 2.3 trillion KRW worth of capital instruments such as subordinated bonds and hybrid capital securities by April this year.
The problem is that additional interest rate hikes are expected in the second half of the year, which could further lower bond prices and worsen insurers' capital soundness. If the trend of rising interest rates continues, there is a growing outlook that more insurers may see their RBC ratios fall below the legal minimum standard.
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