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

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

Insurance companies in Korea saw their average risk-based capital (RBC) ratio drop by 8.3%p quarter on quarter to 246.2% at the end of December 2021 due to market interest rate increases and cash dividends to be paid. 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 fell by 7.4%p to 254.4% over the same period, while the ratio of non-life insurers drop by 9.8%p to 231.4%.

(Source: Financial Supervisory Service)

 

The total available capital of insurers declined by 2% to KRW 161.7 trillion due to rising market interest rates. The yield on ten-year Korea Treasury increased from 2.237% at the end of September 2021 to 2.255% in late December 2021. Higher interest rates caused insurers to suffer a reduction in unrealized gains on available for sale securities, which cut into the book value of their shareholders’ equity. The decrease in available capital was also caused by cash dividends to be paid, which was worth KRW 2.2 trillion.

However, insurers saw their required capital increase by 1.2% to KRW 65.7 trillion at the end of 2021 because their credit risk amount expanded, with their invested assets growing by 1.2% quarter on quarter to KRW 1,075.3 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.

 

< Changes in RBC Ratios of the Korean Insurance Industry >  

(Unit: KRW trillion)

As of Period End

Q3 2021

Q4 2021

Change in RBC Ratio (%p)

Available Capital

Required Capital

RBC Ratio(%)

Available Capital

Required Capital

RBC Ratio(%)

Life Insurers

109.5

41.9

261.8

107.4

42.2

254.4

-7.4

Non-Life Insurers

55.5

23.0

241.2

54.3

23.5

231.4

-9.8

Total

165.0

64.9

254.5

161.7

65.7

246.2

-8.3

 (Source: Financial Supervisory Service)

 

The RBC ratio of an insurer is a key measure of how financially strong an insurer is, indicating its ability to absorb losses and pay insurance claims to policyholders. It gives insight into the insurer’s cash flow as well as whether this cash flow is adequate enough to meet the company’s liabilities. The lower the RBC ratio, the higher the likelihood that the company will default on its financial obligations.

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. The Financial Supervisory Service, which supervises insurance companies in Korea, is responsible for identifying solvency issues of insurers at an early stage and intervening effectively in order to minimize losses to policyholders.

 
 
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