Korea Ratings Downgrades KDB Life Insurance Credit Rating: "Continued Weak Profitability"

Korea Ratings announced on June 25 that it has downgraded the subordinated bond credit rating of KDB Life Insurance from 'A+/Negative' to 'A/Stable'.

Korea Ratings cited the following reasons for the downgrade of KDB Life Insurance's credit rating: deterioration in the stability of its business base, continued weak profitability, and inferior capital adequacy.

Korea Ratings explained, "As of the end of last year, KDB Life Insurance held a mid-to-lower-tier market share, with 2.0% based on total assets and 1.6% based on insurance revenue (excluding reinsurance)." The agency added, "Since 2019, uncertainties related to changes in the major shareholder have led to the departure of exclusive agents and a contraction in new business."

The agency continued, "Although efforts to reorganize distribution channels, such as stabilizing the agent organization and managing the efficiency of the GA channel, are ongoing, the channel base has not recovered, resulting in a deterioration in the stability of the business base." Korea Ratings pointed out, "The agent retention rate remains low (an average of 26.6% for KDB Life Insurance over the past five years based on the 13th-month metric, compared to the industry average of 39.5%), and the number of registered agents is decreasing, indicating a weakening of channel activity."

KDB Life Insurance also continues to show lower profitability compared to the industry. From 2023 through the first quarter of this year, the company's average return on assets (ROA) was 0.10%, falling short of the industry average of 0.60%. Korea Ratings stated, "In both 2023 and 2024, the investment segment recorded losses, and in the first quarter of 2025, the insurance segment posted a loss of approximately KRW 10 billion due to negative spread, resulting in an overall deficit. Overall, profitability improvement remains insufficient." The agency added, "Loss-related contract expenses have arisen due to quarterly changes in actuarial assumptions, leading to increased volatility in insurance profit and loss."

Korea Ratings noted, "The company's inferior level of capital adequacy persists, with the risk-based capital (RBC) ratio declining from 56.7% at the end of 2023 to 53.0% at the end of 2024, and further to 40.6% at the end of March 2025, based on pre-transitional measures. Unless there is a fundamental improvement in the capital structure, the RBC ratio is highly likely to fall back to pre-transitional levels as transitional measures are sequentially lifted."

The main reason for the decline in the RBC ratio was identified as a decrease in core capital due to expanded losses in other comprehensive income. Korea Ratings stated, "In addition to the annual adjustment of discount rates and the recent impact of falling interest rates, ongoing business contraction, low profitability, and high reliance on capital securities continue to burden capital management."

The agency further emphasized, "With accounting capital decreasing, KDB Life Insurance recorded complete capital impairment as of the end of March this year. Given the influence of regulatory changes and declining profitability, it is difficult to accumulate capital. Considering the scheduled annual discount rate adjustments and the possibility of further interest rate declines through 2027, close monitoring of capital adequacy is necessary."

Korea Ratings explained, "In March 2025, KDB Life Insurance became a direct subsidiary of Korea Development Bank and is undergoing a process of business normalization." The agency added, "Based on the major shareholder's track record of financial support, future capital injections are expected to be possible." Korea Ratings continued, "After the uncertainty regarding the change in major shareholder is resolved, the business normalization plan is likely to help restore business stability. The agency will monitor the level of improvement in capital adequacy and the progress of business normalization."