ZCZC
BCN-33
S.KOREA-BOND-INTEREST-RATE
S.Korean insurers’ solvency ratio falls in Q1 on higher interest rates
SEOUL, June 25,2018 (BSS/Xinhua) – Solvency ratio among South Korean
insurers fell in the first quarter amid higher interest rates that reduced
the value of bond holdings, financial watchdog data showed Monday.
The average risk-based capital (RBC) ratio of local insurers was 249.9
percent as of end-March, down 8 percentage points from three months earlier,
according to the Financial Supervisory Service (FSS).
The RBC ratio measures solvency capability by dividing solvency capital by
required capital. The FSS recommends insurers keep the ratio above 150
percent.
The lower solvency ratio came as the solvency capital reduced amid higher
interest rates that reduced the value of bond holdings. The bond value is
adversely affected by higher interest rates.
The U.S. Federal Reserve raised its target rate by 25 basis points in March
to a range of 1.50-1.75 percent, surpassing the Bank of Korea (BOK)’s
benchmark rate of 1.5 percent.
The Fed lifted its policy rate further in June to a range of 1.75-2.00
percent, while the BOK refrained from altering the rate since November last
year.
Expectations ran high for the BOK to tighten its monetary stance in the
near future, which can lead to the additional decline in solvency ratio among
domestic insurers.
Insurance companies usually keep a higher percentage of bond holdings than
other financial institutions to stably manage assets.
The RBC ratio for property insurers dipped 4.9 percentage points to 233.7
percent, while the ratio for life insurers declined 9.4 percentage points to
258.2 percent.
BSS/XINHUA/HR/1440