Lotte Insurance began the early redemption (call option) procedure for subordinated bonds worth 90 billion won issued five years ago, despite not receiving approval from financial authorities.
Lotte Insurance said on the 8th, “We have secured sufficient financial capacity for the redemption of the subordinated bonds and have definitively exercised the call option today to commence the official redemption process,” and noted, “It is not true that the exercise of the call option was postponed.”
The subordinated bonds issued by Lotte Insurance in May 2020 have a maturity of 10 years (2030), but the call option can be exercised five years after the issuance date. It is customary in the market to exercise the call option. It is typical to issue new subordinated bonds to repay existing subordinated bonds.
Lotte Insurance claimed that it had planned to issue new subordinated bonds in February to redeem existing subordinated bonds, but this was thwarted due to intervention from financial authorities. Lotte Insurance stated, “The Financial Supervisory Service required a corrected report the day before the demand forecasting for subordinated bond issuance, thereby strengthening the issuance conditions and making practical issuance difficult.”
Ultimately, Lotte Insurance intended to repay the subordinated bonds with its own funds without issuing new subordinated bonds. However, the FSS denied the exercise of the call option the previous day. It is known that if Lotte Insurance exercises the call option, the solvency ratio (KICS), a key indicator of soundness, would fall below the recommended level of 150%.
Lotte Insurance decided to exercise the call option, saying, “If we do not exercise the call option based on the decision of the FSS, there could be issues with investor protection and financial market stability.”
Lotte Insurance explained, “We are currently going through practical procedures with creditors for the redemption, and the redemption process is expected to be completed within a few days,” adding, “Since this redemption will be carried out with the company's own funds from the general account, there will be no impact on the asset of the policyholders, and there are no issues regarding policyholder protection.”