[Asia Economy Reporter Changhwan Lee] Due to the impact of interest rate hikes, the financial soundness of insurance companies significantly deteriorated in the first quarter of this year. In some insurance companies, the Risk-Based Capital (RBC) ratio fell below the legal standard of 100%, indicating a serious situation that urgently requires countermeasures.
According to the Financial Supervisory Service on the 17th, DGB Life Insurance's RBC ratio for the first quarter was 84.5%, a sharp drop of 139.1 percentage points from 223.6% the previous year.
The RBC ratio is an indicator that shows whether an insurance company can pay out claims immediately when customers request insurance benefits, and it is a key measure of an insurance company's financial soundness.
The Insurance Business Act requires maintaining an RBC ratio of 100% or higher, but DGB Life failed to meet this standard. If the RBC ratio falls below 100%, the company becomes subject to "prompt corrective action" under the Insurance Business Act.
This serves as grounds for strong measures such as audits by financial authorities and suspension of business. Similar to MG Non-Life Insurance, which was once designated as a financially distressed institution due to an RBC ratio below 100%, the Financial Supervisory Service may station dispatched supervisors on-site.
In the first quarter, the rapid rise in interest rates caused a decrease in the valuation gains of held bonds, leading to a sharp decline in DGB Life's RBC ratio. An increase in interest rates means a decline in bond prices.
DGB Life announced plans to raise its capital through various methods, including a paid-in capital increase and issuance of new bonds, to bring the RBC ratio back above 100%.
The company stated that it conducted a paid-in capital increase of 30 billion KRW last month, and if this is included in the RBC ratio calculation at the end of the first quarter, the ratio would be 108.5%. Separately, it is also reported that they are considering additional capital expansion.
Although some insurance companies exceeded the legal standard of 100%, many failed to reach the regulatory recommendation of 150%.
Hanwha General Insurance's RBC ratio at the end of the first quarter was 122.8%, a sharp drop of 54.1 percentage points from the previous quarter, and NH 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's was 139.14%, down 18.5 percentage points.
The concern is that additional interest rate hikes are expected in the second half of the year, which will further lower bond prices and worsen the capital soundness of insurance companies. If the trend of rising interest rates continues, it is predicted that more insurance companies may see their RBC ratios fall below the legal standard.
The financial authorities are also taking the situation seriously and are considering countermeasures. On the 22nd of last month, the Financial Supervisory Service held a meeting chaired by Senior Deputy Governor Chanwoo Lee with CEOs of insurance companies to discuss the decline in RBC ratios and the early introduction of the new solvency regime (K-ICS). The introduction of K-ICS will change accounting standards and generally improve the capital soundness of insurance companies.
An industry insider said, "Interest rates rose faster than expected in the first quarter, and insurance companies have been unable to respond properly, leading to a rapid decline in RBC ratios. There is a general atmosphere of wanting the financial authorities to take swift action."
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