Insurers urged to raise capital bases

The Financial Supervisory Service has advised local insurance firms to boost their capital bases in order to stay afloat next year as the economy is expected to see continued low growth, industry sources said yesterday.

The FSS’s advice comes after insurers’ risk-based capital ratios (RBCs) remain below a level deemed adequate by the financial regulator. The RBC is a key measure of operational soundness as it shows the ratio of total capital to risk-weighted assets.

The FSS has told insurers to keep a ratio of 200 percent or higher, the minimum level for them to maintain fiscal soundness and run “bancassurance,” or insurance policies that are sold at bank branches.

According to the financial regulator, Lotte Non-Life Insurance was in the worst shape as of September as its RBC ratio stood at 148.5 percent, followed by Heungkuk Fire and Marine Insurance (167.1 percent), Hanwha General Insurance (167.9 percent) and Hi-Car Direct (177.9 percent). AXA General Insurance, Meritz Fire and Marine Insurance, and LIG Insurance were also below 200 percent in the same period.

The FSS said Lotte, Heungkuk and Hanwha - which have the three worst RBCs - need to adopt measures to reduce risk by shoring up more capital. Lotte, the worst offender, is planning a major capital increase by early next year.

The FSS said it will urge the other two to follow suit if their ratios dip below the September figures at the end of this month.

“We’re closely monitoring insurers and exchanging ideas with them about capital increases,” said an official at the watchdog. “This is because the ratios of the three companies may fall further.”

“We’re advising insurers to seek capital increases through various channels,” said an official at the FSS.

By Kim Mi-ju [mijukim@joongang.co.kr]