Korean insurers face call options of $3.21 billlion this year

Hanwha Life Insurance headquarters [Photo by Lee Chung-woo]

Korean insurance companies are facing an increasing burden on their finance as the amount of call options on their subordinated debt and hybrid bonds that mature this year exceeds 4 trillion won ($3.21 billion). Such securities carry high interest rates and are affected by more rigorous accounting and risk-based capital ratio requirements implemented in January.

According to sources on Sunday, hybrid bonds and subordinated debt issued by major insurers will mature one after another from this month. DB Life Insurance Co. and Fubon Hyundai Life Insurance Corp. have to repay 80 billion won of subordinated debt and 60 billion won of hybrid bonds this month. The coupon rates of these securities are 5.2 percent and 6.2 percent, respectively.

Meritz Fire & Marine Insurance Co. is set to repay 100 billion won of subordinated debt that matures in April at an interest rate of 4 percent.

For capital securities, such as subordinated debt and hybrid bonds, it is customary for local issuers to repay early usually with a five-year call option. This year, the volume of call options maturing in the second quarter is 2.11 trillion won. The biggest concern is whether Hanwha Life Corp. will be able to repay $1 billion hybrid bonds in April, which is the largest amount among call options this year.

Hanwha Life Insurance already announced that it will repay them as scheduled and set up a specific plan to raise funds. At the end of September last year, the company’s risk-based capital ratio was 159 percent, slightly higher than the 150 percent recommended by financial authorities. A risk-based capital ratio is a ratio of an issuer’s regulatory capital to its risk-weighted assets.