Kyobo Life’s stable outlook holds despite mounting liabilities: Fitch Ratings

Fitch also expects Kyobo Life's capital adequacy to recover.

Kyobo Life Insurance’s outlook remains stable despite challenges in the broader South Korean life insurance sector, driven by improved profitability and efforts to strengthen capital adequacy, Fitch Ratings said.

The company's contractual service margin (CSM) on a separate account basis rose to $4.2b (₩6,067b) by the end of the third quarter of 2024, compared to $4.1b (₩5,889b) at the end of 2023, despite new regulatory guidelines that negatively impacted the CSM of other insurers.

The return on equity (ROE) increased to 9% by the end of the third quarter, up from 4% at the end of the previous year.

This improvement reflects the insurer's strategic focus on protection-type policies, which generate higher CSM, and an increased CSM amortisation rate.

Fitch expects Kyobo Life's capital adequacy to recover, supported by stable CSM accumulation and recent debt issuance.

The insurer raised $483m (₩700b) through subordinated securities in August 2024 and $414m (₩600b) through hybrid securities in November 2024.

Although a lower discount rate has led to increased liabilities and a reduced solvency ratio—down to 222% by the end of September 2024 from 265% at the end of 2023—Fitch anticipates a recovery by the end of the year.

However, Kyobo Life's exposure to risky assets remains a concern. Despite a decrease in risky assets, including stocks and below-investment-grade bonds, the risky-asset ratio rose to 128% by mid-2024 from 112% at the end of 2023 due to a lower capital base.

The ratio of below-investment-grade bonds to capital remained below 1% by the end of June 2024, staying within manageable levels.