Insurance company with red light on soundness,
Are life insurance companies more risky?
Deteriorating finances of insurance companies / Source: News 1
In the first half of this year, a warning light came on regarding the financial soundness of domestic insurance companies.
In particular, the solvency ratio of life insurance companies has fallen significantly, which is an important indicator that shows whether insurance companies can pay the promised benefits on time under the new solvency system (K-ICS).
The new solvency system is a standard for evaluating the financial status of insurance companies and measures how much funds the insurance company has prepared in the event of an unexpected large-scale accident or loss.
Under this system, insurance companies calculate the solvency ratio by comparing available capital and required capital. The higher the ratio, the more stable the insurance company’s ability to pay, and the lower the ratio, the greater the risk of payment.
Deteriorating finances of insurance companies / Source: News 1
According to data released by the Financial Supervisory Service, the insurance company’s new solvency ratio as of the end of June 2024 was 217.3%, down 6.3 percentage points from the previous quarter.
In particular, the ratio of life insurance companies fell by 10.3 percentage points to 212.6%.
If this ratio falls below 150%, the financial authorities will manage the financial soundness of the insurance company by requesting additional capital expansion.
Insurance is also hit by falling market interest rates.
Deteriorating finances of insurance companies / Source: News 1
The reason for the drop in the new solvency ratio is the decline in market interest rates and the expansion of health insurance sales.
When interest rates fall, the profits from assets held by insurance companies decrease and insurance liabilities increase, which reduces the available capital of insurance companies.
In addition, as sales of health insurance and long-term insurance increase, the amount of capital that insurance companies need to prepare for emergencies, that is, the required capital, has increased, which is also the cause of the ratio decline.
As available capital decreased and required capital increased, the solvency ratio decreased.
Deteriorating finances of insurance companies / Source: News 1
Life insurance companies were particularly hard hit. Major life insurance companies such as Kyobo Life Insurance and Hanwha Life Insurance barely exceeded the 150% minimum standard recommended by financial authorities.
Hanwha Life Insurance’s new payment capacity ratio was 162.8%, Kyobo Life Insurance’s was 161.2%, each falling more than 10%, and Samsung Life Insurance’s was 201.5%, down 11.2 percentage points from the previous quarter.
In the case of non-life insurance companies, the decline was relatively small, but caution is still needed.
The new payment capacity ratio of non-life insurance companies decreased slightly to 223.9%, but remains relatively stable.
Financial authorities said, “As uncertainty in domestic and international financial markets is increasing, we will continue thorough supervision to ensure that insurance companies secure sufficient capital,” and announced that they will especially focus on managing insurance companies with weak financial status.
