Insurers' Risk-Based Capital Ratio Drops to 206.7% at End of Last Year, Down 11.6 Percentage Points from Previous Quarter

Life Insurers at 203.4%, Down 8.3 Percentage Points
Non-life Insurers at 211%, Down 16 Percentage Points

The financial soundness of insurance companies deteriorated at the end of last year compared to the previous quarter.

According to the Financial Supervisory Service on May 15, the key indicator of insurers' financial soundness, the risk-based capital ratio (K-ICS), stood at 206.7% at the end of last year, down 11.6 percentage points from 218.3% at the end of the previous quarter. By sector, the K-ICS for life insurers fell by 8.3 percentage points to 203.4%, while for non-life insurers, it decreased by 16 percentage points to 211% over the same period.

Front view of the Financial Supervisory Service headquarters.

The K-ICS is calculated by dividing available capital by required capital. At the end of last year, insurers' available capital was 248.1 trillion won, a decrease of 10.8 trillion won compared to the previous quarter. Available capital declined due to a decrease in insurance liabilities resulting from falling interest rates, as well as the impact of year-end dividend payouts. Required capital at the end of last year was 120 trillion won, an increase of 1.4 trillion won from the previous quarter. Required capital rose due to the expansion of protection-type insurance sales and an increase in disease risk amounts.

Asset-liability management (ALM) is at the core of capital management for insurers. With interest rates falling recently due to policy rate cuts and concerns over economic slowdown, the importance of ALM is growing. The financial authorities have identified that, despite the significant increase in liability duration compared to asset duration during periods of declining interest rates, some insurers have been neglecting ALM management, such as by expanding sales of long-term maturity products. Going forward, the authorities plan to encourage proactive ALM management that takes interest rate sensitivity into account, such as by setting asset duration longer than liability duration in preparation for further interest rate declines.

An official from the Financial Supervisory Service stated, "As regulatory enhancements are planned to improve the quality of capital in the insurance sector, we will strive to strengthen the soundness of capital structures," adding, "Based on communication with the insurance industry, we will establish phased regulatory measures for basic capital and guide companies to proactively increase their basic capital in preparation for the new regulations."