 |
Photo Courtesy of Dongyang Life Insurance |
[Alpha Biz= Kim Sangjin] Dongyang Life Insurance, which is set to be acquired by Woori Financial Group, is preparing to issue hybrid securities worth up to 700 billion KRW (approximately USD 500 million). While the company explains that the issuance is a proactive measure to address potential capital volatility, some have criticized it as excessive given the upcoming acquisition.
According to sources in the insurance industry on Thursday, Dongyang Life's board of directors decided on January 13 to issue hybrid securities worth up to 500 million USD (around 700 billion KRW). However, the exact timing and type of securities to be issued have not yet been determined.
The company stated that the decision was made to respond to capital volatility and maintain stable capital soundness under the new insurance accounting standard (IFRS17) and the solvency regulation (K-ICS).
Financial authorities had previously implemented a temporary grace period in response to inflated performance results tied to actuarial assumptions under IFRS17. After this grace period ends, K-ICS ratios are expected to decline. Additionally, as interest rates drop, the market value of insurance liabilities increases, reducing capital. For this reason, insurers typically rush to increase capital before year-end financial reporting.
The K-ICS ratio is an indicator of an insurer’s ability to meet policyholder claims. The financial authorities recommend maintaining a K-ICS ratio of at least 150%, with the legal minimum set at 100%.
Dongyang Life's K-ICS ratio has been on a steady decline. The ratio was 174.7% at the end of Q1 2023, dropping to 166.2% by Q2 and further down to 160.3% by Q3, barely staying above the regulatory guideline. The company is currently in a precarious position, just meeting the recommended threshold.
AlphaBIZ Kim SangJin(letyou@alphabiz.co.kr)
