Seoul: The capital adequacy ratios of South Korean insurance companies continued to decline in the second quarter, influenced by increased capital requirements and growing insurance plan sales, according to new data.
According to Yonhap News Agency, the Financial Supervisory Service reported that the average capital adequacy ratio of domestic insurance firms was 217.3 percent at the end of June, a decrease of 6.3 percentage points from the previous quarter. The capital adequacy ratio, a critical financial health indicator for insurers, measures available capital relative to the funds required under the Korean Insurance Capital Standard (K-ICS).
This downward trend follows an 8.6 percentage point drop recorded in the first quarter of the year. The recent decrease in the second quarter was primarily due to a 2.6 trillion won ($1.9 billion) increase in required capital, raising the total to 119.8 trillion won. This hike in required capital was driven by heightened sales of insurance plans and increased market
risks associated with falling interest rates.
The sector-specific impact varied, with life insurers experiencing a significant reduction in their capital adequacy ratios. The ratio for life insurance providers dropped by 10.3 percentage points to 212.6 percent. In contrast, non-life insurance companies saw a modest decline of 0.8 percentage points, ending the quarter at 223.9 percent.
The Financial Supervisory Service highlighted specific risk factors contributing to these shifts. “Life/long-term insurance risk grew by 1.3 trillion won due to expanded sales of insurance plans. Additionally, market risk increased by 1.5 trillion won quarterly as declining market interest rates amplified interest rate risk,” the agency noted in a release.
The continued deterioration in capital adequacy ratios signals potential challenges for the insurance industry, particularly if these trends persist amid fluctuating economic conditions.