Starting next month, insurers will have to set aside additional capital when they handle mortgage loans with high loan-to-value (LTV) ratios, which is expected to reduce new mortgage lending. Although the financial authorities decided to ease the second-half cap on household loans and release an additional 30 trillion won, they chose to tighten insurers' mortgages.
According to the insurance industry and others on the 28th, the financial authorities recently convened a Regulatory Review Committee and finalized a revision to the Enforcement Rule of the Regulations on Supervision of the Insurance Business reflecting this content. The revision raises the risk weight on mortgages handled by insurers starting at the end of September.
Specifically, when calculating the capital adequacy ratio (K-ICS) for mortgages with LTVs of 60% to 80%, the risk weight now applied at 3.5% will rise to 4% at the end of September. The risk weight is the standard that determines the amount of capital that must be additionally set aside based on the risk level of each asset. When the figure goes up, the capital burden on insurers increases.
The purpose of this rule revision is to raise the burden of mortgages for insurers and expand incentives to invest in productive sectors. The financial authorities said, "It is necessary to preemptively manage system risk stemming from the financial sector's concentration in real estate and provide institutional support to guide funding toward productive sectors."
Because this raises the risk weight by 0.5 percentage point for certain LTV bands, the immediate impact on insurers' capital is projected to be limited. However, as the risk weight increases, required capital rises accordingly, reducing insurers' incentives to handle mortgages.
On Aug. 13, to support real demand in real estate, the financial authorities decided to raise the target growth rate for managing household loan increases in the financial sector from 1.5% to 3.0%. As a result, the entire financial sector is expected to gain about 30 trillion won in additional lending capacity.
With the financial authorities easing loan regulations, some insurers that had halted mortgages recently resumed lending operations. Samsung Fire & Marine Insurance(000810), which stopped handling mortgages last month, restarted some operations the previous day, and 한화생명도 reopened mortgage lending after about two months. Other insurers that had reduced mortgage handling are also reportedly considering when to resume.