The insurance payment capability indicator of Fubon Hyundai Life Insurance has effectively entered 'minus' territory. This is because the company has recorded operating losses for three consecutive years, leading to a depletion of capital available for insurance payments. The core capital, which should play a key role in absorbing losses during a crisis, plummeted to -850 billion won at the end of last year, resulting in available capital (solvency amount) also recording -191.5 billion won. Other than the largest shareholder, Taiwan's Fubon Financial Group, injecting additional funds, there are no sharp solutions to overcome the crisis.
According to the insurance industry on the 26th, Fubon Hyundai Life recorded a net loss of 72.5 billion won in the first quarter of this year. The annual net income figures are -210.9 billion won in 2022, -110.5 billion won in 2023, and -34 billion won last year, indicating a reduction in the size of losses; however, the loss has expanded again in the first quarter of this year, placing the company in a crisis.
The retained earnings, which serve as the profit reserve for corporations, worsened to -362.4 billion won at the end of last year, compared to -321.1 billion won the previous year. A negative retained earnings indicate that the cumulative losses are greater than the money that Fubon Hyundai Life Insurance has earned up to this point.
The prolonged losses of Fubon Hyundai Life Insurance are analyzed to be due to the high proportion of annuities and savings insurance. Under the new accounting system (IFRS 17), savings insurance has less impact on increasing net income. Savings insurance is recognized as a liability for future insurance payments. Since Fubon Hyundai Life Insurance has a high proportion of retirement annuities, it was required to increase the sales of protection insurance according to the application of IFRS 17. However, without sufficient operational capacity, it failed to escape from the losses. At the end of last year, retirement annuities accounted for 57.7% (1.5135 trillion won) of Fubon Hyundai Life Insurance's premium income of 2.6203 trillion won.
Fubon Hyundai Life Insurance (then Green Cross Life) changed its name to Hyundai Life after being acquired by Hyundai Motor Group in 2012. It then secured a large number of retirement annuities from affiliates of Hyundai Motor Group, achieving its highest net income in 2021. However, the introduction of IFRS 17 changed the situation. The net income of 29.3 billion won recorded in 2022 was reversed to -205.1 billion won due to the application of IFRS 17. Hyundai Life has been operating under the current name of Fubon Hyundai Life Insurance since 2018 when Fubon Financial Group became the largest shareholder.
The ability to pay insurance claims is also decreasing. At the end of last year, the solvency ratio (KICS) was 157%, exceeding the financial authorities' recommendation of 150%. However, excluding the effects of transitional measures, the KICS turned to -14.5% from the previous quarter's 17.3%. Fubon Hyundai Life Insurance is the only domestic insurer with a negative KICS before applying transitional measures, while MG Non-Life Insurance, designated as a distressed financial institution, stands at 3.4%. The transitional measures are intended to gradually apply the new risk assessments for insurance companies' solvency ratios due to the anticipated decline following the introduction of KICS.
The core capital of Fubon Hyundai Life Insurance decreased more than twice, from -382.5 billion won at the end of 2023 to -850.8 billion won at the end of last year. Despite similar total asset size, it is even lower than KDB Life, which recently fell into complete capital erosion at -418.1 billion won. Core capital consists of paid-in capital and retained earnings, serving as essential capital that absorbs losses in times of crisis. In times of crisis, the company's financial structure is easily prone to collapse.
The solvency indicator derived from the core capital, known as 'core capital KICS,' is 43.1% after the application of transitional measures, which is higher than KDB Life's 24.8%. However, if calculated based on the pre-transitional measures (excluding capital reduction), it stands at -64.5%, lower than KDB Life's -31%.
Financial authorities are applying transitional measures to minimize the impact of IFRS 17 introduction. Rather than reflecting the newly recognized insurance risks all at once due to changes in accounting standards, they are gradually reflecting them over a maximum of 10 years. As time goes by, the effects of the transitional measures decrease, which increases the burden on Fubon Hyundai Life Insurance. Fubon Hyundai Life Insurance has been under transitional measures since March 2023.
In the insurance industry, it is diagnosed that there are no other substantial methods to address the situation other than additional capital injection unless Fubon Hyundai Life Insurance's net income rebounds. Fubon Hyundai Life Insurance has conducted two rounds of capital increases amounting to 850 billion won since 2021. As of the end of last year, it held 100 billion won in new-type capital securities and 892.5 billion won in subordinated bonds.
Fubon Hyundai Life Insurance did not disclose solvency indicators in its first-quarter report this year. It plans to disclose confirmed figures by the end of this month. Considering that the scale of the deficit in the first quarter has nearly doubled compared to the end of last year, there is a possibility that the solvency indicators will decline further.