This year, the financial health indicators of insurance companies have deteriorated one after another. The solvency ratio (KIX) of some insurers has failed to meet the standards set by financial authorities.
According to management disclosures from various companies on the 1st, as of the end of the first quarter, the KIX of Lotte Insurance, Fubon Hyundai Life Insurance, Tongyang Life Insurance, and MG Insurance was reported to fall below the financial authority's recommendation of 150%. Lotte Insurance's KIX ratio dropped from 154.59% at the end of last year to 119.93% at the end of the first quarter, a decrease of 34.66 percentage points. During the same period, Tongyang Life Insurance fell from 155.5% to 127.2%, a decrease of 28.3 percentage points, and Fubon Hyundai Life Insurance declined from 157% to 146%, a drop of 11 percentage points. MG Insurance's KIX ratio was -18.22%.
The KIX ratios of large insurance companies have also worsened. Hanwha Life, the second largest in the life insurance sector, declined from 163.7% to 154.1%, while Kyobo Life Insurance, the third largest, fell from 220.76% to 186.82%.
The recent drop in KIX ratios has been influenced by increased insurance liabilities due to declining interest rates in the first quarter and the realization of discount rates, as well as a decrease in net worth. Korea Ratings stated in a recent report, "Due to the impact of institutional strengthening such as the realization of discount rates, the burden of capital management across the industry has increased, and companies with high sensitivity of KIX ratios to interest rates are likely to have experienced a significant drop in KIX ratios due to the effects of falling interest rates."
Insurance companies have begun raising capital by issuing new hybrid securities or subordinated bonds to defend their KIX ratios. Hanwha Life's board of directors decided on the 27th of last month to issue new hybrid securities worth $1 billion overseas and announced that all raised funds would be used to improve KIX ratios. Shinhan Life received orders totaling 1.2 trillion won for subordinated bonds intended for early repayment of new hybrid securities worth 300 billion won this August.
Meanwhile, financial authorities will change the recommended KIX standard from the current 150% to 130% starting this month. However, Lotte Insurance and Tongyang Life Insurance still fail to meet even the lowered recommendation.