South Korean insurers are continuing their issuance of capital-backed securities this week, with several companies planning major offerings.
Hanwha Life Insurance, ABL Life Insurance, and Hyundai Marine & Marine Insurance are set to issue a combined total of 800 billion won in capital securities.
According to the investment bank (IB) industry on March 17th, Hanwha Life Insurance initiated a demand forecast for 300 billion won in new capital securities on the same day. ABL Life Insurance is scheduled to conduct its demand forecast on the 18th, aiming to raise 100 billion won in subordinated bonds. Hyundai Marine & Marine Insurance will then follow suit, forecasting demand for the issuance of subordinated bonds worth 400 billion won on the 19th.
Choi Sung-jong, a researcher at NH Investment & Securities, stated, “The insurance companies scheduled to issue this week are expected to succeed in raising funds steadily,” adding, “The fundamentals of the insurance companies scheduled to issue are strong, and the demand for high interest rates is valid.”
However, some analysts anticipate a potential decline in the issuance of capital securities in the future. This is due to recent easing of standards by financial authorities regarding the capital adequacy ratio, known as K-ICS (Korea Insurance Capital Standard), or “Kicks.”
The Financial Supervisory Service (FSS) recently announced a plan to lower the K-ICS recommendation of 150 percentage points to enhance the quality of insurance companies’ capital. The basic capital Kicks ratio will be introduced as a requirement for timely corrective measures, and disclosure will be strengthened.
Since the basic capital Kicks ratio regulation does not recognize complementary capital such as subordinated bonds or new capital securities, it is expected that insurance companies may need to make large-scale capital increases later on.
The authorities implemented these measures because of the excessive increase in the issuance of capital securities by insurance companies. Last year, insurance companies issued a record 8.7 trillion won in capital securities due to falling interest rates, which significantly lowered their K-ICS ratio. This year, 2.1 trillion won worth of capital securities had already been issued until last month.
This increased issuance has also deepened the financial burden on insurance companies, as this has added to their interest-rate costs. However, as the Financial Supervisory Service has not yet confirmed precise regulations, insurance companies appear to be continuing their issuance of capital securities for now.
