Fitch Ratings has reaffirmed its stable outlook for Kyobo Life Insurance, despite ongoing challenges within the South Korean life insurance sector. The company’s improved profitability and ongoing efforts to strengthen its capital position have been key factors in maintaining this outlook.
As of the third quarter of 2024, Kyobo Life’s contractual service margin (CSM) on a separate account basis rose to $4.2 billion (₩6,067 billion), up from $4.1 billion (₩5,889 billion) at the end of 2023. This growth occurred despite the introduction of new regulatory guidelines, which had a negative impact on the CSM of other insurers.
The company’s return on equity (ROE) also saw a significant increase, reaching 9% by the end of Q3 2024, compared to 4% at the same point in 2023. This improvement is attributed to Kyobo Life’s strategic emphasis on protection-type policies, which offer higher CSM, alongside an increased rate of CSM amortization.
Fitch expects Kyobo Life’s capital adequacy to recover, supported by the continued accumulation of CSM and the insurer’s recent debt issuances. In August 2024, Kyobo Life raised $483 million (₩700 billion) through subordinated securities, followed by an additional $414 million (₩600 billion) through hybrid securities in November 2024.
Despite these positive developments, Kyobo Life’s solvency ratio has been affected by a lower discount rate, which has led to increased liabilities. As of September 2024, the insurer’s solvency ratio stood at 222%, down from 265% at the close of 2023. However, Fitch anticipates that the solvency ratio will recover by the end of the year.
One area of concern remains Kyobo Life’s exposure to risky assets. Although the company has reduced its holdings in risky assets, such as stocks and below-investment-grade bonds, the ratio of risky assets to capital increased to 128% by mid-2024, up from 112% at the end of 2023. This increase was primarily due to a lower capital base. Nevertheless, the ratio of below-investment-grade bonds to capital remained under 1% as of June 2024, staying within manageable levels.
Related topics
