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Photo = Yonhap news |
[Alpha Biz= Paul Lee] Seoul, South Korea – May 25, 2025 – Korea Ratings Corporation (Korea Ratings) has joined Korea Investors Service (KIS) in revising its outlook on Lotte Insurance Co., Ltd.’s subordinated bonds and hybrid securities to "Negative" from "Stable", while maintaining the existing credit ratings of ‘A-’ and ‘BBB+’, respectively.
In a report dated May 22, Korea Ratings cited persistently weak profitability, with Lotte Insurance’s three-year average return on assets (ROA) at 0.77%, trailing the industry average. The agency noted earnings volatility amid regulatory changes, increased interest burdens from retirement pension segments, and investment losses as factors weighing on the company’s financial performance.
Korea Ratings further highlighted that Lotte’s K-ICS (Korean Insurance Capital Standard) ratio stood at 125.8% at the end of 2024 (prior to transitional adjustments), below the industry average. With regulatory tightening expected, including a reduction in long-term discount rates and the implementation of a new core capital solvency requirement, the agency expressed concerns about the company’s limited capital buffer.
As of the end of 2024, Lotte Insurance had approximately ₩856 billion in outstanding subordinated and hybrid securities, using them as key instruments for capital adequacy management. However, the agency warned that delays in exercising call options on these instruments could undermine market access in the near term.
This follows a similar move by Korea Investors Service on May 13, which downgraded the outlook for Lotte Insurance’s IFSR (Insurer Financial Strength Rating), subordinated bonds, and hybrid securities to ‘Negative’, citing persistent capital pressure, rising investment losses, and declining asset quality.
Lotte Insurance previously attempted to exercise a call option on subordinated debt despite not meeting the K-ICS eligibility criteria, but was halted by the Financial Supervisory Service. The company now plans to strengthen its capital base and revisit the call option execution in the second half of 2025.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
