Hana Life Insurance Issues 180 Billion Won of New Hybrid Capital Securities to Improve Capital Adequacy

October 30, 2025
Noah
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Supplementing the Declined RBC Ratio Due to Bond Valuation Losses
Subordinated Bond Maturity Compared to Market Valuation of Long-term Insurance Liabilities

Hana Life Insurance has issued 180 billion KRW worth of hybrid capital securities to improve its solvency ratio (RBC), a regulatory ratio for insurance company soundness. This move aims to defend against the expansion of bond valuation losses due to rising interest rates and the deterioration of RBC caused by the maturity of subordinated bonds. It also serves as a proactive response to the new solvency regime (K-ICS), which evaluates insurance liabilities at market value.

According to the investment banking (IB) industry on the 5th, Hana Life Insurance recently issued 180 billion KRW of hybrid capital securities with KB Securities as the lead manager. The maturity is 30 years, but it is a perpetual bond with an option to extend the maturity further. From five years after issuance, Hana Life can exercise a call option to redeem the principal and interest before maturity. If Hana Life does not exercise the call option, the interest rate will increase stepwise in a step-up structure.

The interest rate for the next five years is set at 5.62%. If the call option is not exercised after five years, the interest rate payable to investors will continue to rise. Interest payments can be deferred, but deferred interest must be paid in a lump sum later. This method allows some delay in interest payments to have the bond recognized as capital in accounting. It is known that Hana Financial Group has fully subscribed to the hybrid capital securities issued by Hana Life Insurance.

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Hana Life issued hybrid capital securities as a measure to improve its RBC. As of the end of last year, Hana Life’s RBC stood at 186.32%, exceeding the financial authorities’ recommended standard of 150% by more than 30 percentage points. However, it has slightly declined compared to 204.79% at the end of June last year due to valuation losses on held bonds caused by rising interest rates. An IB industry official said, “Although we manage assets mainly in long-term government bonds for stability, rapid interest rate increases make valuation losses on bonds classified as available-for-sale securities inevitable.”

In April, the maturity of subordinated bonds is also approaching. Subordinated bonds with more than five years to maturity can be recognized as 100% capital in accounting. However, if the maturity falls within five years, the capital recognition ratio decreases by 20% annually. Hana Life’s 50 billion KRW subordinated bonds issued in April 2017 will mature on the 7th and 21st of this month.

There is also the purpose of preparing for the new solvency regime (K-ICS) newly applied to insurers. Hana Life is considered one of the insurers with a large amount of long-term insurance liabilities, resulting in a significant capital reduction due to market value evaluation of liabilities. For this reason, it has applied to the supervisory authorities for transitional measures on available capital to gradually recognize the capital reduction caused by market value evaluation.

An industry official said, “Following IBK Pension Insurance’s issuance of 200 billion KRW of hybrid capital securities under the lead of Kyobo Securities, demand for hybrid capital securities will continue to increase due to the implementation of K-ICS,” adding, “After Credit Suisse (CS)’s AT1 bond write-down incident, global market demand for hybrid securities has shrunk, increasing the likelihood of more private placements.”