Solvency ratios at the insurance arms of South Korea's mutual finance institutions fell across the board as market volatility widened. All three remained above the 150% level recommended by regulators, but their capacity to absorb losses weakened.
The solvency ratio for the insurance business of the Korean Federation of Community Credit Cooperatives stood at 173.96% at the end of June, down 10.12 percentage points from 184.08% a year earlier, according to financial industry sources on the 20th. The National Credit Union Federation of Korea posted the steepest decline, falling 25.0 percentage points to 317.1% from 342.1%. The National Federation of Fisheries Cooperatives slipped 5.0 percentage points to 226.9% from 231.9%.
The solvency ratio measures whether an insurance provider can pay out claims to policyholders even in the face of unexpected losses. It is calculated by dividing available capital by the required capital that must be held against various risks. Regulators recommend maintaining the ratio at 150% or above.
Market watchers attribute the declines to heightened volatility this year. An official at the Korean Federation of Community Credit Cooperatives said valuation losses on securities and an increase in risk exposure stemming from market swings weighed on the solvency ratio. Gains and losses on available-for-sale securities swung to a loss of 111.1 billion won in the first half of this year from a gain of 117.9 billion won a year earlier.
Net profit trends diverged. The insurance business of the Korean Federation of Community Credit Cooperatives posted first-half net profit of 100 billion won, up 32.3% from a year earlier. The credit union federation's net profit rose 57.1% to 9.6 billion won from 6.1 billion won. The fisheries cooperative federation, by contrast, saw net profit fall 24.9% to 4.2 billion won from 5.5 billion won.
An official at the credit union federation said an excessively high ratio can reduce asset efficiency, adding that surplus capital is being used to expand the insurance business and improve profitability within the bounds of maintaining financial soundness. The official said there are no concerns about overall soundness.
