Insurance Companies' Capital Adequacy Deteriorates in Q2... Solvency Ratio Drops by 6.3%p

Financial Supervisory Service Announces Q2 Insurance Companies' Solvency Ratios
Life Insurers Down 10.3%p QoQ, Non-Life Insurers Down 0.8%p

In the second quarter, insurance companies' ability to pay insurance claims deteriorated. The situation worsened more for life insurance companies than for non-life insurers.

According to the "Status of Insurance Companies' Solvency Ratio (K-ICS) as of the end of June 2024" released by the Financial Supervisory Service on the 17th, the K-ICS of insurance companies applying transitional measures stood at 217.3%, down 6.3 percentage points from the previous quarter.

K-ICS is a capital soundness indicator that represents an insurer's ability to pay insurance claims. It is the ratio of available capital to required capital. Available capital includes capital stock, retained earnings, and other capital held by the insurer. Required capital is the amount of capital an insurer must hold to pay claims to policyholders. The Financial Supervisory Service recommends that insurers maintain a K-ICS of 150% or higher. If the K-ICS falls below 100%, management improvement orders and possible exit measures can be imposed.

The decline in insurers' solvency ratios was mainly due to a significant decrease in available capital caused by falling market interest rates. In the second quarter, insurers' available capital for K-ICS was KRW 260.4 trillion, down KRW 1.8 trillion from the previous quarter. Although net income and adjusted reserves increased by KRW 4.5 trillion and KRW 4.4 trillion respectively compared to the previous quarter, other comprehensive income decreased by KRW 11.9 trillion due to increased insurance liabilities from the decline in market interest rates. The required capital for K-ICS in the second quarter rose by KRW 2.6 trillion to KRW 119.8 trillion compared to the previous quarter. This was mainly due to increased life and long-term non-life insurance risks centered on disability and disease risks from expanded health insurance sales, as well as increased market risk from the expansion of interest rate risk caused by falling market interest rates.

By sector, the life insurers' K-ICS in the second quarter was 212.6%, down 10.3% from the previous quarter. Among life insurers, Chubb Life Insurance experienced the largest drop in K-ICS, decreasing by 52.6%. This was followed by IM Life (-44.1%), Kyobo Planet (-43.4%), and DB Life (-33%).

The non-life insurers' K-ICS in the second quarter was 223.9%, down 0.8 percentage points from the previous quarter. Among non-life insurers, digital insurers saw significant declines in K-ICS. Kakao Pay Insurance's K-ICS dropped by 1007.8% compared to the previous quarter, while Shinhan EZ Insurance (-58.1%) and Carrot Insurance (-28.8%) also experienced large decreases.

A Financial Supervisory Service official stated, "As of the second quarter, insurers' K-ICS remains at a stable level. However, given the ongoing expansion of uncertainty in financial markets, we will thoroughly supervise vulnerable insurers to ensure they secure sufficient solvency."