Solvency Ratio Falls Below 150% Upon Early Redemption
Authorities: "Market Impact from Schedule Change Expected to Be Limited"
According to the financial industry on May 7, Lotte Insurance has decided to postpone the exercise of the call option on its 90 billion won subordinated bond, "Lotte Insurance 8 (Subordinated)," originally scheduled for May 8, to May 12. The schedule was changed on the day before the call option exercise date. The urgent postponement was due to the company's solvency requirements. As of the end of last year, Lotte Insurance's risk-based capital ratio (K-ICS) stood at 154.59%. If the company were to exercise the call option on the subordinated bond, the ratio would fall below 150%. An official from the Financial Supervisory Service explained, "There is a legal requirement that early redemption cannot be carried out if the risk-based capital ratio does not exceed 150%."
Lotte Insurance stated, "We will attempt to proceed with the early redemption of the subordinated bond again by May 12." The company could face sanctions for violating legal requirements. In the market, the exercise of call options on subordinated bonds is considered customary, and there are concerns that if Lotte Insurance fails to exercise the call option, investor sentiment could weaken.
However, authorities believe the impact on the capital market will be minimal. A senior official from the Financial Supervisory Service said, "The market situation is different now, and the issue of Lotte Insurance's solvency has already been recognized by market participants. In the case of Heungkuk Life, the problem arose because the bond was issued in foreign currency and affected the global market, but Lotte Insurance's subordinated bond was issued in Korean won, so the impact on the market is expected to be limited."
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