Korea Ratings noted on 23rd that it changed the credit rating outlook for subordinated bonds and new capital securities of Lotte Insurance from "stable" to "negative" through its regular evaluation on the 22nd. It presented the continued low revenue and the limited capacity for managing capital ratios as the basis for the downgrade in the outlook. However, the credit ratings remained at "A-" and "BBB+" respectively.
Korea Ratings explained in its report on this day, "Given the high volatility of insurance profit due to institutional changes, continued low revenue resulting from interest burdens in the retirement pension institutional sector and losses on investment assets prevail," and "the company's ROA (return on assets) over the last three years is 0.77%, which is below the industry average."
It analyzed, "The profitability of insurance is relatively volatile due to institutional changes, and the insurance contract margin (CSM), which indicates future profit generation capacity, is also volatile," adding, "The interest burden in the retirement pension institutional sector persists, and the profitability of the investment sector has deteriorated due to interest rate fluctuations and recognition of losses in alternative investments."
Korea Ratings further diagnosed that "the K-ICS solvency ratio at the end of last year was 125.8% before the application of optional transition measures, which is inferior to the industry average," and "the solvency amount is expected to decrease due to a reduction in liquidity premiums and a lowering of long-term leading interest rates in 2024, leading to a decline of approximately 49 percentage points compared to the end of the previous year in the solvency ratio before the transition measures are applied."
It added, "With the reduction of long-term leading interest rates and the introduction of regulatory indicators for basic capital solvency ratios expected, it is assessed that the capacity for managing capital ratios is limited," and "If the current low levels of capital adequacy and revenue structure continue, the pressure for credit rating downgrades will increase."
Previously, Korea Ratings had also downgraded the insurance payment ability (International Financial Reporting Standards) of Lotte Insurance, along with the outlook for the credit rating of subordinated bonds and new capital securities from "stable" to "negative" on the 13th due to the burden of capital management.