The risk-based capital (RBC), the minimum required liquid reserves for financial institution, at South Korean insurers has been sinking with some smaller players demanding scrutiny from authorities due to sharp fall, according to Financial Supervisory Service data on Tuesday.

The ratio of total risk-based capital against risk-weighted assets for industry leader Samsung Life Insurance Co. fell more than 30 percentage points from 369.2 percent in 2014 to 336.5 percent in 2015.The share of minimum capital placement against operating losses also slipped to 350.38 percent in 2015 from 375.12 percent for top non-life insurer Samsung Fire & Marine Insurance Co. The ratios for Hanwha Life Insurance Co. and Kyobo Life Insurance were shaved by 41 percentage points and 11.48 percentage points, respectively. That of Heungkuk Life Insurance Co. decreased from 218.3 percent to 183.1 percent late last year.

RBC is referred as a measurement for affordability of an insurer to return annuities as well as reflection of its financial health. In short, the bigger the ratio, the safer the insured is to be repaid regardless of sudden troubles in the company or the industry. It is measured by the net assets divided by loss reserves, or the minimum capital a company is required to set aside to pay customers in case it goes insolvent for life insurers. For non-life insurers it is calculated against risk-weighted assets.

Decrease in the capital adequacy ratio suggests increasing losses in casualty policies and worsening investment returns in low-interest environment. Stricter regulations also have added to the woes of insurers.

The Financial Supervisory Service (FSS) raised risk-weighted base from 95 percent to 99 percent, requiring insurers to set aside more losses reserves against their operating capital. The ratio would fall if they do not comply. The FSS said the strengthened guideline was necessary to meet global standard.

The rule change has become burdensome for smaller companies, making their ratio to fall under 200 percent. Despite capital increase through right offering of 150 billion won worth in June last year, Lotte Non-life Insurance’s ratio came to 144.44 percent.

Companies with ratio near 100 percent would demand scrutiny from the authorities and those whose ratio fall below 100 percent, warning to improve adequacy level.

Most non-life insurers’ ratios are under 200 percent. Except for the two largest - Samsung and Meritz Fire & Marine Insurance Co. with a ratio of 199.3 percent - Hyundai Marine & Fire Insurance’s was tallied at 171.1 percent and KB Insurance Co. at 170.2 percent.

The non-life insurers are most re-insured, but falling adequacy ratio against risk would bode badly for them in the longer term, said one industry source.

By Park Joon-hyung

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