[이데일리 박정수 지영의 기자] In the aftermath of the steep rise in interest rates, the value of bonds held by domestic insurance companies plummeted, and the valuation loss exceeded 14 trillion won. At this rate, there are concerns that the group will suffer a group insolvency by the end of the year due to deterioration in soundness. The financial authorities are struggling to come up with alternatives as complaints have been pouring in from the insurance industry in an emergency to ease capital regulations.
According to data obtained from the Financial Supervisory Service through the office of Rep. Dong-su Dong of the Democratic Party of Korea on the 30th, E-Daily accumulated bond valuation losses of the top 19 domestic life insurers and non-life insurers in equity capital (reflecting the merger between Orange Life and Shinhan Life Insurance) as of the end of the first quarter as of the end of the first quarter. The size was estimated at about 14.7054 trillion won. As of the end of last year, bond valuation gains were around 4 trillion won, but they forgot about 20 trillion won in just five months. This is attributable to a sharp drop in bond prices held by insurance companies as bond yields have risen rapidly since the beginning of the year.
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As bond losses snowballed, insurers’ solvency (RBC) ratios fell sharply. As of the end of last year, the RBC ratio of insurance companies was 246.2%, a sharp drop from 274.9% in the previous year. According to the Insurance Business Act, the RBC is 100% or higher, and the standard recommended by the financial authorities is more than 150%, but there are already many places that fall below these standards. The situation is expected to get worse from the second quarter. This is because there remains a possibility that the US Federal Reserve will take an additional big step (0.5 percentage point increase at a time) in June and July. Even those with stable RBC ratios until the first quarter may face a situation in which they are taking measures. There is also a horrific story that by the end of the year, if the RBC ratio falls below the standard, insurance companies will be designated as insolvent financial institutions one after another. If the insured company is designated as an insolvent financial institution, general insurers can wait for the transfer of the contract to another insurance company, or even in the worst case, the Deposit Insurance Corporation can guarantee a cancellation refund up to a limit of 50 million won.
In order to maintain the RBC ratio, insurance companies in crisis are holding on by issuing subordinated bonds with a coupon rate of 5-6% and hybrid capital securities. The amount of capital securities issued by insurance companies by mid-May alone exceeded 2 trillion won. Recently, Heungkuk Fire & Marine Insurance issued 20 billion won worth of hybrid capital securities at a 6% interest rate, and Nonghyup Life Insurance also issued 230 billion won of subordinated bonds at a 4.5% interest rate. The issuance of capital securities with a high interest rate is a factor that deteriorates profits in the long run, but there is no special way to put out the fire immediately.
As the situation gradually worsened, insurance companies filed complaints with the Financial Supervisory Service several times asking for relief. It is a position to come up with measures to ease RBC regulations. However, it is not easy to change the direction of supervision that has been maintained for a long time, so the authorities are deeply concerned.
Representative Yoo Dong-soo said, “Even though rebalancing is usually done very carefully in the capital market, it is the result of domestic insurance companies excessively pursuing profits. Nevertheless, when the interest rate actually rises while ignoring it, there is an aspect that a bond shock has become a reality.”
“The financial authorities should devise measures not to pass on the damage to financial consumers while sternly deal with the moral hazard of insurance companies,” he said.
