S. Korea’s financial authority to ease regulations on insurers

South Korea’s financial regulator is seeking to temporarily relax regulations in the country’s insurance industry to prevent insurers from selling bonds to stabilize the country’s money market.

Under measures announced by the Financial Services Commission and Financial Supervisory Service on Thursday after a meeting with life insurers, insurance companies’ liquidity index evaluation rating will be upgraded by one notch in their risk assessment and application system (RAAS) evaluation until the end of this year. An insurer with second-grade evaluation rating will be moved up to first grade and one with fifth-grade to fourth grade.

The regulator will also temporarily allow insurers to include assets with a maturity of more than three months like bonds that are immediately cashable as liquidity assets. Currently, assets of under three-month maturity are regarded as liquidity.

In response to this, insurance companies should refrain from selling bonds and cooperate with the government to stabilize the money market as institutional investors, the financial authority urged.

The financial authority has decided to relax regulations in the insurance industry as life insurers face with increasing capital strain. It has also become harder for insurers to raise funds after Heungkuk Life Insurance’s decision to delay buying back its Nov.9-due perpetual notes, heightening volatility in the debt market.

According to industry estimate, Korea’s top three life insurance companies need 6.4 trillion won ($4.5 billion) in funds over the two remaining months this year. They need more cash to cover increasing insurance cancelation requests by policy holders seeking to move money to banks for higher interest rates but the lack of financial facilities has forced them to sell bonds to raise funds.

Nearly all of 23 life insurance companies in Korea, except for MetLife Insurance, saw a decline in net income. Liquidity ratio, which is calculated by dividing liquidity asset to three-month average insurance payment, also fell 80.2 percentage points over the past year.

Life insurance companies net purchased 3.9 trillion won worth bonds in August, but they turned into net bond sellers of 2.1 trillion won in October.

Insurance industry has also asked the Bank of Korea to add insurers to the list of institutions subject to its repurchase agreements purchase program.

By Shin Chan-ok, Chae Jong-won, and Lee Eun-joo