Domestic insurance companies are focusing on capital expansion through the issuance of new convertible bonds or subordinated bonds. With the solvency ratio of insurers (K-ICS) falling to the lowest level in history, it is analyzed that they are concentrating on measures to defend their soundness.
According to disclosures from various companies on the 27th, Hanwha Life issued $1.36 trillion in new convertible bonds this month. This is the first issuance in three months since issuing $600 billion in new convertible bonds in March. New convertible bonds are long-term securities with maturities typically exceeding 30 years, recognized as capital in accounting. If the financial condition of the issuer deteriorates, conditions are attached that allow for the conversion of the principal into shares or write-off, which helps secure liquidity.
Shinhan Life issued $500 billion in subordinated bonds this month. In March, Hyundai Marine & Fire Insurance, Hanwha Life, ABL Life, and NongHyup Insurance also simultaneously issued subordinated bonds ranging from a minimum of $150 billion to a maximum of $800 billion. Subordinated bonds rank lower than general corporate bonds in terms of repayment order but have higher interest rates. They can be recognized as capital when calculating the capital adequacy ratio (BIS). Issuing subordinated bonds means that soundness can be improved.
The insurance industry is in urgent need of recovering the K-ICS ratio. The K-ICS ratio is an indicator created to evaluate whether insurers can properly pay claims in the event of accidents. According to the 'Status of Insurance Companies' Solvency Ratio as of March 2025' released by the Financial Supervisory Service this month, the solvency ratio (K-ICS) of insurers recorded 197.9% after applying transitional measures at the end of March. This is a decrease of 8.7 percentage points from the previous quarter's end (206.7%), reaching the lowest level ever and falling below 200% for the first time in 23 years.
It is analyzed that the recent decline in interest rates has led to a decrease in the K-ICS ratio of insurance companies. When interest rates fall, the present value of the insurance payouts that insurers must make in the future increases, leading to an increase in liabilities, which in turn causes the K-ICS ratio to decline.
It is expected that the management of solvency by insurance companies using subordinated bonds and new convertible bonds will become increasingly difficult. This is because financial authorities are trying to change the compliance standards for the K-ICS ratio centered on core capital. If the K-ICS ratio is calculated based on core capital, it will only derive the solvency based on capital that is substantial and possesses strong loss absorption capability, excluding subordinated bonds and new convertible bonds.
An industry official noted, 'For insurance companies, managing the current K-ICS ratio is more urgent than preparing for the introduction of the core capital K-ICS ratio' and added, 'There is a growing possibility of further interest rate cuts, so there are attempts to accumulate capital in advance.'