Insurance companies are on alert as risk-based capital (RBC), an indicator of asset quality, saw industry-wide decline.
Furthermore, financial supervisory authorities are raising the RBC requirement to 200% in September, which is a 50% increase from the current 150%. As such, managing RBC is considered one of the key concerns in the insurance industry.
According to insurance industry reports released on August 7, end-of-June RBC at major insurance companies fell approximately 10% - 30% over March numbers.
Industry leader Samsung Fire’s RBC saw a 33% drop from 438% in March to a record 404%. RBC at Hyundai Marine & Fire Insurance fell from 207% to 189%, breaking the 200% floor.
RBC at LIG Insurance fell from 177% to 165%, Dongbu Insurance from 243% to 231%, and Lotte Insurance from 186% to 163%.
Heungkuk Fire & Marine Insurance also predicts that its RBC fell from 191% to below 170%.
As such, the insurance companies are struggling to stop the RBC from further decline, but the overall consensus is that there are no definite solutions.
They have been attempting to raise capital by issuing new shares and subordinated bonds, but these measures remain as temporary remedies.
As the basis of low interest is sustained, the RBC ratio is steadily declining.
Hanwha Non-Life Insurance, which barely made the Financial Supervisory Service requirement last March with RBC at 155.2%, recently decided to issue new shares amounting to 150 billion Korean won.
Meritz Fire issued new shares in May, but the RBC fell from 184.1% to 170% within three months.
“In May, we lifted the RBC by about 10% by issuing 55.5 billion Korean won worth of stocks, but still could not stop the RBC from declining,” said Meritz Fire personnel.
Last December, Lotte Insurance gathered capital by issuing shares amounting to 292 billion Korean won, but still lost over 20% RBC by June.
In the midst of these troubles comes the upward adjustment of the recommended RBC levels, from 150% to 200%, further deepening woes in the insurance industry.
“Companies cannot respond to market changes in interest rates or government regulations. Thus, each company needs to find its own way of lowering the RBC, such as increasing reinsurance subscription volume. But there seems to be no clear solution,” said an industry personnel in frustration.
RBC is the ratio of available capital to required capital. An RBC ratio of 200% means that the insurance company has enough capital to issue coverage to all subscribers twice and still remain solvent.