Capital adequacy ratio of Korean insurers deteriorate amid rising interest rates

Capital adequacy ratio of Korean insurers has been deteriorating sharply amid tightening and depressed capital market environment.

According to first-quarter disclosures, the average risk-based (RBC) ratio, the minimum capital required to set aside to protect stakeholders and policyholders, of 15 life insurers averaged at 179.7 percent as of March, compared with 222.3 percent three months ago. The average of non-life insurers was at 181.3 percent, off 20.0 percentage points during the same period.

The ratio is the base for regulatory actions from authorities.

When the ratio goes below 100 percent, the financial watchdog issues a warning. The recommended threshold for insurers is 150 percent or above.

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

Life insurers hold bonds with longer maturities than non-life insurers, placing them more vulnerable to rate increases.

Five insurers, including DGB Life Insurance, NH Life, DB Life Insurance, Hanwha General Insurance, and Heungkuk Life, posted RBC ratio of below 150 percent. More could join them as interest rates will rise further in the second quarter.

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

The RBC ratio could be less meaningful as accounting system migrates to the International Financial Reporting Standard (IFRS) 17 and K-ICS from 2023, but it nevertheless can be measurement to keep watch on risk management during precarious times, one industry expert said.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]