News Life and Health25 Jun 2018

South Korea:Central bank monitors impact of rate hikes on insurers

25 Jun 2018

South Korean insurers and securities houses are vulnerable to a possible sudden rate hike that may cause a sharp drop in their solvency ratio, says the central bank, Bank of Korea (BOK).

"Insurers and securities firms will see their risk-based capital (RBC) ratio fall sharply as a rate increase is likely to bring about a loss in their equity holdings," the BOK said in its Financial Stability Report submitted to Parliament, after conducting a new stress test, assuming a three percentage point rise in market interest rates by 2019.

These entities hold higher percentages of bonds, which are adversely affected by interest rates, in their assets, reports the Yonhap News Agency citing the BOK report.

The stress test results showed that insurers' RBC ratio drops to 182.9% from 257.9% after the rate hike shock, while brokerages see their numbers decline to 536.1% from 636.3%.


 

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