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제목 RBC Ratios of the Korean Insurance Industry as of late September 2021

RBC Ratios of the Korean Insurance Industry as of late September 2021

The average risk-based capital (RBC) ratio of insurance firms in Korea fell by 6.4%p quarter on quarter to 254.5% at the end of September 2021 amid market interest rate increases and stock market declines. Despite the decrease, most insurers remained financially robust with their ratios hovering above 150%, which is the practical guideline set by the supervisory authorities. Life insurers saw their average RBC ratio drop by 11.1%p to 261.8% over the same period, but the ratio of non-life insurers rose by 2.3%p to 241.2%.


(Source: Financial Supervisory Service)

 

The total available capital of insurers decreased by 1.4% to KRW 165 trillion due to rising market interest rates and falling stock prices. The yield on ten-year Korea Treasury increased from 2.09% at the end of June 2021 to 2.24% in late September 2021. The Korea Composite Stock Price Index or KOSPI tumbled from 3,296.7 to 3,068.8 over the three month period. Those financial market conditions caused insurers to suffer a reduction in unrealized gains on available for sale securities, which cut into the book value of their shareholders’ equity. This decline came in spite of the issuance of subordinated bonds and seasoned equity offering, both of which collectively added KRW 800 billion to the total available capital. 

However, insurers saw their required capital increase by 0.9% to KRW 64.9 trillion at the end of the third quarter of 2021 as the insurance risk amount rose in line with a growth in net written premiums. Their credit risk amount also expanded, with their invested assets growing by around 1% quarter on quarter to KRW 1,062.3 trillion.       

The RBC ratios of insurers in Korea have been mostly trending down recently, and solvency capital management has remained one of the biggest challenges for the insurance industry in Korea with the implementation of IFRS 17 scheduled for 2023 along with a new risk-based capital (RBC) regime called the Korean Insurance Capital Standards (K-ICS), which will require strengthened capital adequacy. In response, insurers have been exploring various options to boost their RBC ratios by reducing capital requirements or increasing available capital.

 

 

The RBC ratio is a key measure of how financially strong an insurer is, indicating its ability to absorb losses and pay insurance claims to policyholders. Insurers are required by law to maintain the ratio at 100% or above in Korea, and their RBC ratios are regularly monitored by the supervisory authorities. In case of any signs of deterioration in the ratio, the financially weakening insurer will be guided to take proactive actions such as more rigorous stress testing and capital raising.

 
 
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