Lee Bok-hyun, Financial Supervisory Service Chief, "Growing Concerns Over Economic Downturn, Insurers Must Ensure Strict Capital Management"

Lee Bok-hyun, Governor of the Financial Supervisory Service

[Asia Economy Reporter Changhwan Lee] The new Financial Supervisory Service (FSS) Governor met with insurance company CEOs and urged them to manage their capital more thoroughly amid growing concerns about an economic recession.

On the 30th, at the Life Insurance Education and Culture Center in Jongno-gu, Seoul, Lee Bok-hyun, Governor of the FSS, held a meeting with CEOs of major domestic insurance companies and said, "Due to recent concerns about an economic recession and the sharp rise in market interest rates, which are also affecting the capital adequacy of insurance companies, please prepare more thoroughly than ever."

Governor Lee warned, "Despite improvements to the RBC (Risk-Based Capital) system, if the pace of interest rate hikes continues, there is a possibility that the capital adequacy ratings of insurance companies may decline again."

He added, "Each insurance company should strengthen enterprise-wide capital management and prioritize increasing basic capital through paid-in capital increases when expanding capital. The FSS also plans to strengthen continuous monitoring of capital adequacy by conducting stress tests based on various interest rate scenarios."

He also expressed concerns about the potential deterioration of investment assets due to the economic downturn.

Governor Lee stated, "The possibility of defaults on real estate project financing (PF) loans and overseas alternative investments may increase due to the global economic recession. Please strengthen credit supervision related to PF loans and enhance self-inspections regarding the appropriateness of asset soundness classification for alternative investments."

He continued, "Insurance companies operate a significant portion of foreign currency assets, such as overseas bonds, and hedge about 91% of them through foreign exchange derivatives. They need to shift their foreign exchange hedging strategies from short-term to long-term to manage foreign currency liquidity."

He emphasized the importance of doing their best to protect insurance consumers. In particular, he expressed concern over the recent surge in consumer complaints related to medical consultations and claim denials in indemnity health insurance.

Governor Lee said, "While enhancing the sustainability of indemnity insurance is important, no harm should come to honest consumers who file legitimate claims during this process. Please continue to review urgent issues for consumer protection in the insurance claim review process, such as ensuring fairness in the medical consultation pool."

Given the current interest rate hike period, he also urged efforts to protect vulnerable borrowers. He requested, "Please ensure that loan interest rates are reasonably calculated considering the debt repayment ability of vulnerable borrowers, and strengthen consumer guidance so that the right to request interest rate reductions, which has been introduced in the insurance sector, can be more actively utilized." He added, "The FSS will also actively support the activation of this system through disclosures of the acceptance status of interest rate reduction requests."