Korean insurers’ capital ratio deteriorates amid rising interest rates

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The capital adequacy ratio of Korean insurers deteriorated sharply amid tight and depressed capital markets.

According to first-quarter disclosures, the average risk-based ratio (RBC), the minimum capital required to protect stakeholders and policyholders, of 15 life insurers averaged 179.7% in March, down from 222, 3% three months ago. The average for non-life insurers was 181.3%, down 20.0 percentage points over the same period.

The ratio is the basis for the regulatory actions of the authorities.

When the ratio drops below 100%, the financial watchdog issues a warning. The recommended threshold for insurers is 150% or more.

The jump in the yield of bond holdings, which means the fall in bond prices, has lowered their capital valuation.

Life insurers hold bonds with longer maturities than non-life insurers, which makes them more vulnerable to rate hikes.

Five insurers, including DGB Life Insurance, NH Life, DB Life Insurance, Hanwha General Insurance and Heungkuk Life, posted an RBC ratio below 150%. Others may join them as interest rates rise further in the second quarter.

Prudential Life, Shinhan Life Insurance, Samsung Life, Kyobo Life and Samsung Fire & Marine Insurance managed to keep theirs above 200%.

The RBC ratio may be less meaningful as the accounting system migrates to International Financial Reporting Standard (IFRS) 17 and K-ICS from 2023, but it can still be a measure to monitor risk management in times precarious, said an industry expert.

By impulse

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Sallie R. Loera