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Non-Life Insurers Suffer from Sharp Decline in Solvency Margin Ratio

June 04, 2012 13:33|July 04, 2012 13:08
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Most of Korea's non-life insurance companies reported a sharp decline in their solvency margin ratio, an index to indicate the degree of capital soundness. This is blamed mainly on the decline in the earnings ratio of asset operation, caused by the European fiscal crisis, plus last year's introduction of a new accounting standard that is designed to reflect a variety of additional risks. Against this backdrop, the non-life insurance firms plan to “take actions, including capital increase, to expand their capital base” in case when their solvency margin ratio falls to 150 percent or below, a level required by the Financial Supervisory Service.

Among them is Green Non-Life Insurance Co. whose solvency margin ratio stood at -52 percent as of March 2012, a decline from 159.8 percent in March 2011 and 14.3 percent at the end of 2011. The solvency margin ratio is an index that indicates how much capital is available to cope with risks like bankruptcy. In other words, it refers to the weight of net assets.

Green Non-Life Insurance Co. is not alone. Hyundai Marine & Fire Insurance Co.’s online car insurance subsidiary Hi Car Direct also saw its solvency margin ratio fall to 138.2 percent from 140.3 percent in March 2011. Since its inauguration in 2006, it has failed to exceed the level of 150 percent.