Korean insurers’ capital adequacy ratio sharply deteriorates amid rising rates

2022.04.27 13:25:31 | 2022.04.27 13:26:00

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Capital adequacy ratio of Korean insurers sharply deteriorated amid rising interest rates.

The risk-based capital (RBC) ratio, the minimum capital required for insurers to set aside to protect stakeholders and policyholders, fell by 17.1~67.1 percentage points in the first quarter against a quarter-ago, according to first-quarter financial statements of insurers under disclosure requirements.

Prudential Life Insurance of Korea, an affiliate of KB Financial Group, registered RBC ratio at 280.7 percent in the first quarter, down 61.7 percentage points from the previous quarter. Shinhan Life Insurance, a subsidiary of Shinhan Financial Group, saw its ratio deteriorate 29.6 percentage points to 255.0 percent, while that of Hana Life Insurance and KB Life Insurance fell respectively to 171. 1 percent and 162.3 percent.

The recommended base for insurers’ RBC is 150 percent. A fall below 100 precent attracts a warning from the financial regulator.

Their capital adequacy ratio deteriorated due to depreciation of bond holdings from rise in interest rates.

A 0.1 percentage point rise in long-term government bond yield generally cuts RBC ratio by 1 to 5 percentage points. Asset-backed issues and rights offering have surged by insurers to raise their capital adequacy ratio.

By Shin Chan-ok and Jenny Lee

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