Lotte Insurance CI. (Photo courtesy of Lotte Insurance)

 

 

[Alpha Biz= Kim Jisun] Lotte Insurance’s decision to delay the execution of a call option on its subordinated bonds is rippling through the market, raising concerns over the capital adequacy of certain insurers.



According to the financial investment industry and Yonhap Infomax, the price of Lotte Insurance’s 8th subordinated bond declined but continued to trade at yields higher than the average market yield assessed by private bond valuation agencies. The average bond price, as calculated by four major private agencies, dropped from KRW 10,120.8 on May 2 to KRW 9,900.8 on May 9.



On May 9, the bond traded at a yield up to 73 basis points (1bp = 0.01%) higher than the market average (known as the “Minpyeong” yield), signaling growing credit risk concerns and prompting a wave of selling activity.



Although Lotte Insurance announced on May 7 that it would delay exercising the call option—originally scheduled for May 8—it maintained that it still intended to exercise the option. The Financial Supervisory Service (FSS), however, expressed strong concerns over the move, creating tension between the insurer and the regulator.



The market reaction has not been limited to Lotte Insurance. Subordinated bonds issued by other insurers with weaker capital positions, such as Fubon Hyundai Life and KDB Life, also saw rising yields in the wake of the delay.



The impact has extended to retail investors as well. According to Yonhap Infomax, out of the KRW 90 billion issued in Lotte Insurance’s 8th subordinated bond, approximately KRW 67.6 billion is currently held by individual investors. The remaining holdings are split among institutional investors, including KRW 11.2 billion by corporates, KRW 6.2 billion by securities firms, and KRW 5.0 billion by merchant banks.

 

 

 

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