On the 5th, the financial authorities imposed a "management improvement recommendation," the lowest level among prompt corrective actions, on Lotte Insurance.
Prompt corrective action is a management improvement prescription that the financial authorities issue to financial companies whose asset soundness or capital adequacy indicators fall short of the threshold. It has been a little over three years since an insurer received prompt corrective action, following MG Non-Life Insurance in 2022.
At a regular meeting that day, the financial authorities resolved to take prompt corrective action against Lotte Insurance. In a press release, the Financial Services Commission (FSC) said, "Lotte Insurance became subject to prompt corrective action after receiving an overall grade of 3 and a capital adequacy grade of 4 in the Financial Supervisory Service's management status evaluation." If capital adequacy is grade 4 (vulnerable), the company becomes subject to prompt corrective action.
Lee Dong-yeop, an insurance Director at the Financial Services Commission (FSC), held a briefing and said, "As of the end of June this year, the non-life industry's average basic capital K-ICS ratio is 106.8%, while Lotte Insurance is minus (-) 12.9%." In addition, the share of lapse-free products within long-term insurance, the business ratio within long-term insurance, and the share of alternative investments within operating assets were seen as weak compared with the industry.
The Director said, "On the non-quantitative side as well, many deficiencies were pointed out in the supervisory authority's management status evaluation," and added, "We looked at whether the K-ICS ratio is appropriately managed, whether the internal capital management policy is reasonable, and whether the capital composition is appropriate and sustainable going forward, and judged there is considerable room for improvement."
He also said, "Lotte Insurance once received a deferment of prompt corrective action in 2021," adding, "Issues pointed out at the time, such as capital raising and internal control systems, have not been resolved even now, four years later."
However, some argue that prompt corrective action is excessive given that Lotte Insurance's K-ICS ratio stood at 141.6% as of the end of September, exceeding the financial authorities' recommended level of 130%. Lotte Insurance issued a statement, saying, "Imposing a management improvement recommendation on a financial company based on a non-quantitative evaluation result is the first case since the introduction of the management status evaluation," and protested that it would review response measures.
Under the prompt corrective action, Lotte Insurance must draw up a management improvement plan to enhance capital adequacy—such as asset disposals, expense reductions, and organizational operation improvements—within two months and submit it to the Financial Supervisory Service (FSS). If the Financial Services Commission (FSC) approves the management improvement plan, Lotte Insurance will carry out improvement work for one year.
During the implementation period of the management improvement plan, Lotte Insurance's operations, including premium payments, insurance claim filings and payments, and new contract signings, will proceed as normal.