Heungkuk Increases Capital on FSS Recommendation
By Yoon Ja-young
Staff Reporter
Heungkuk Fire & Marine Insurance has increased its capital following the financial regulator's recommendation.
According to the insurer, Taekwang Industrial, its largest shareholder, took over 7.6 billion won worth of shares issued by the insurer and Heungkuk Life Insurance, another major shareholder of the non-life insurer, took on 2.4 billion won of the 10 billion shares issued by Heungkuk Fire & Marine Insurance.
Taekwang has also lent 20 billion won to the non-life insurer.
The infusion of funds totaling 30 billion won helped the company raise its solvency margin ratio, which measures fiscal soundness to pay insurance money.
Heungkuk saw its ratio fall to 118 percent in June. The infusion of capital, however, helped it raise its solvency margin ratio to near 150 percent, the level that the Financial Supervisory Service (FSS) recommends insurance companies maintain.
``Our solvency margin ratio fell as we piled up reserves to prepare against a possible loss from refund guarantee (RG) insurance,'' a spokesperson explained.
Heungkuk saw sales increase by 31.1 percent in the first quarter compared with a year ago, but recorded 27.6 billion won in losses as it had to amass the reserves.
Heungkuk is facing a possible loss from RG insurance on Jinse Shipbuilding. RG refers to a guarantee in shipbuilding contracts that banks will pay back advance payments made by ship buyers in cases where the shipbuilder fails to deliver the ship on the due date. Banks subscribe to RG insurance sold by insurance companies to avoid the risk.
A number of insurance companies, including Heungkuk, Meritz, and Hanwha, are involved in RG insurance for Jinse Shipbuilding. The insurance companies wanted to put the shipbuilder under a workout program instead of paying the insurance money. The insurers planned on infusing 77.8 billion won into the shipbuilder so that it can build and sell ships. However, the banks have rejected the workout plan.
``The loss from RG insurance is not realized yet. We just amassed the reserves as there is a possibility we will incur the loss,'' the Heungkuk spokesperson said.