The Financial Supervisory Service expressed significant concerns regarding Lotte Insurance's plan to redeem subordinate bonds for financial soundness, stating, "In a situation where we have not heard an official position on the capital expansion plan, we cannot help but have tremendous concerns about the plan to repay subordinate bonds that should be used for financial soundness."
On the 8th, Se-hoon Lee, the chief deputy commissioner of the Financial Supervisory Service, held a briefing at the Financial Supervisory Service in Yeongdeungpo-gu, Seoul, and noted, "If the subordinate bonds are redeemed, we are concerned about the serious negative impact on financial soundness."
The deputy commissioner emphasized that Lotte Insurance must first meet legal requirements to proceed with early redemption. He stated, "The approval of the FSS is a formal procedure to confirm the legal requirements, leaving no room for discretion," adding, "If the requirements are met, there is no reason for the FSS to deny early redemption."
He continued, "As long as one engages in financial business, having the minimum capital to safely manage customer funds is a fundamental condition," stating that one cannot claim to continue operating in the financial sector without fulfilling this requirement.
Previously, Lotte Insurance planned to redeem 90 billion won of subordinate bonds issued five years ago. Although subordinate bonds have a lengthy maturity of 10 years, it is customary to redeem them between 3 to 5 years. However, with the FSS's disapproval of the early redemption, complications arose. The solvency ratio indicator for Lotte Insurance fell below 150%, failing to meet the early redemption criteria set forth in insurance business regulations.
Lotte Insurance announced that despite the FSS's disapproval, it would continue with the early redemption process. The company claims that since the funds used for early redemption are from the general account, there will be no impact on contract assets, and there is no issue with protecting contract holders.
In response, the deputy commissioner pointed out, "Funds from the general account must be prepared to cover any issues that may arise with customer money," adding, "Just because it's a general account does not mean there's no problem using it. This is the first time I've heard such a statement during my career in the financial sector."
The FSS expects that Lotte Insurance will find it difficult to proceed with early redemption without approval. The deputy commissioner expressed doubt, stating, "I have concerns about whether it is realistically and technically possible to proceed with the early redemption," and noted, "If legal requirements are not met, enforcement actions are inevitable."