Lotte Insurance delayed the early redemption of subordinated bonds worth 90 billion won. This was because the insurance company failed to meet the solvency ratio, known as K-ICS.
According to the financial sector on the 7th, Lotte Insurance decided to postpone the exercise of the call option for the subordinated bonds to the 12th. The previous date for exercising the call option was the 8th, five years after the issuance, but the schedule was changed the day before.
Typically, after five years, subordinated bonds are redeemed by issuing other subordinated bonds after exercising the call option. Lotte Insurance also intended to redeem subordinated bonds issued five years ago on the 8th, but it is reported that the financial authorities did not permit this.
A Lotte Insurance official noted, 'If we ask bondholders whether they want to be repaid through mutual agreement, we plan to redeem from operating funds,' adding, 'It may be delayed beyond the 12th, but we will repay as soon as possible.'
The urgent postponement of the call option exercise by Lotte Insurance is due to solvency requirements. As of the end of last year, Lotte Insurance's K-ICS ratio was 154.59%. To issue subordinated bonds, the K-ICS ratio must be above 150%, but if redeeming this subordinated bond early, the ratio would drop below 150%. Thus, they could not exercise the call option.
A senior official from the FSS explained, 'There is a legal requirement that if the solvency ratio does not exceed 150%, early redemption cannot take place, so we are in a situation where early redemption cannot occur.'
There are also concerns that Lotte Insurance may face sanctions for violating legal requirements. However, the market believes that the impact of Lotte Insurance's postponement of the call option exercise on the funding market will be limited. The FSS plans to monitor the funding market through an emergency response system.