Lee Bok-hyun, the head of the Financial Supervisory Service (FSS), expressed concerns about the early redemption of subordinated bonds worth 90 billion won by Lotte Insurance, stating on the 8th that "necessary actions must be taken rigorously in accordance with regulations" to FSS employees.
On the same day, Lee attended a financial situation review meeting held at the FSS headquarters in Yeouido, Seoul, where he conveyed this opinion. He noted, "Please closely evaluate whether Lotte Insurance has the financial soundness necessary to protect policyholders and take necessary actions swiftly." He added, "Please ensure that vague anxiety does not spread in the financial market."
Lotte Insurance announced that it had initiated the early redemption (call option) procedures for its subordinated bonds worth 90 billion won on that morning. Subordinated bonds can be redeemed by issuing other subordinated bonds after the call option is exercised five years post-issuance. Lotte Insurance intends to redeem the subordinated bonds it issued in May 2020 in this manner and issue new subordinated bonds.
Earlier, in February, Lotte Insurance claimed that it sought to issue new subordinated bonds and redeem existing ones, but the FSS prevented this. The FSS reportedly rejected the call option fearing that Lotte Insurance’s solvency ratio, known as the Insurance Financial Stability Ratio (KIX), would fall below the regulatory recommendation of 150%. The KIX is a key indicator of an insurer's soundness.
However, the FSS believes that even if there are disruptions in Lotte Insurance's call option, the impact on the bond market will be limited. Currently, the domestic bond market is experiencing a trend of declining benchmark interest rates, with corporate bond rates dropping to about 2.9%, and the average daily transaction volume in the bond market reaching roughly 29.9 trillion won, indicating ample market liquidity.
Lee stated, "To prevent the solvency issues of some vulnerable small and medium-sized financial institutions from spreading market instability, we will swiftly review and implement necessary stabilization measures in cooperation with the F4 (macroeconomic and financial issues meeting)."