[Asia Economy Reporter Changhwan Lee] As the newly appointed Financial Supervisory Service (FSS) chief, a former prosecutor, urged insurance companies to proactively manage capital in preparation for an economic downturn, there are expectations that insurers will undertake additional capital increases in the second half of the year.
On the 30th of last month, Lee Bok-hyun, the head of the FSS, held a meeting with CEOs of major domestic insurance companies at the Life Insurance Education and Culture Center in Jongno-gu, Seoul, stating, "Given recent concerns about an economic recession and the sharp rise in market interest rates, which are affecting insurers' capital adequacy, please prepare more thoroughly than ever."
Lee warned, "Despite improvements to the RBC (Risk-Based Capital) system, if the pace of interest rate hikes continues, there is a possibility that insurers' capital adequacy ratings could decline again."
He added, "Each insurer should strengthen enterprise-wide capital management and prioritize increasing core capital through rights offerings when raising capital. The FSS also plans to enhance ongoing monitoring of capital adequacy by conducting stress tests under various interest rate scenarios."
Lee particularly emphasized, "It is necessary to trim branches that are already broken or shaken before the typhoon hits," urging thorough management of capital soundness.
Domestic insurers have faced difficulties managing capital adequacy in the first half of the year due to a sharp drop in RBC ratios caused by rising market interest rates. Some, like MG Non-Life Insurance, were designated as insolvent financial institutions by financial authorities due to deteriorating financial structures.
Following the FSS chief's warning, it is expected that major insurers will continue to raise capital through rights offerings and bond issuance in the second half of the year, as they did in the first half.
Lee also stressed the importance of doing their best to protect insurance consumers. He expressed concern over the recent surge in consumer complaints related to medical consultations and claim denials in indemnity health insurance.
He 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 address urgent issues related to consumer protection in the claims review process, such as ensuring fairness in the medical consultation pool."
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