[Edaily Marketin Reporter KIM YEON-SEO ] Kyobo Life Insurance is set to issue up to 400 billion won in hybrid capital securities. This move is seen as an effort to manage capital adequacy by refinancing existing hybrid capital securities, for which the call option is set to expire this coming September. With the introduction of the Basic Capital Solvency Ratio (K-ICS) regulation scheduled for next year, attention is focused on the results of this bookbuilding process.

According to the investment banking (IB) industry on the 29th, Kyobo Life Insurance has planned to issue up to 400 billion won in hybrid capital securities by the end of August. To this end, the company plans to conduct a bookbuilding process targeting institutional investors in August. The securities will have a 30-year maturity and include a call option (early redemption right) five years after issuance.

Hybrid capital securities are capital-class securities recognized as equity for accounting purposes. They typically have long maturities of 30 or 99 years and are structured so that the issuer can exercise an early redemption option (call option) after a certain point. Because hybrid capital securities are long-term instruments with extended maturities, they are classified as “basic capital” on financial statements. Financial institutions can use them to bolster their equity capital and improve their solvency ratios.

In particular, insurance companies have been steadily issuing hybrid capital securities to manage their K-ICS (Korean Insurance Capital Standards) ratios stably and secure the capital flexibility needed to expand their insurance policies. Although market interest rates have recently remained somewhat high, demand for capital expansion continues even during the off-season when general corporate bond issuance has declined, leading to sustained issuance of hybrid capital securities by insurance companies.

The funds raised in this issuance are expected to be used to refinance existing hybrid capital securities for which the call option is set to expire this coming September. According to the Financial Supervisory Service, Kyobo Life Insurance must decide this September whether to exercise the call option on 470 billion won worth of won-denominated hybrid capital securities issued in 2021 at an annual rate of 3.72%.

Subsequently, a $500 million foreign-currency hybrid capital security (5.90% per annum) due in June of next year, a 500 billion won won-denominated hybrid capital security (5.80% per annum) due in May 2028, and KRW 600 billion worth of new capital securities (4.60% per annum) due in November 2029 will reach their call option exercise dates in succession.

Through this refinancing issuance, Kyobo Life Insurance is expected to exercise the call options on its existing securities as scheduled and maintain market confidence. This is because, given the need to maintain capital adequacy, the replacement of hybrid capital securities is crucial; moreover, failing to exercise the call options could fuel concerns about the company’s financial position. Previously, in 2022, when Heungkuk Life Insurance postponed the exercise of call options on its hybrid capital securities, investor sentiment toward insurance companies’ capital securities in general declined sharply.

NICE Credit Rating and Korea Credit Rating have assigned a credit rating of “AA0 (Stable)” to Kyobo Life Insurance’s hybrid capital securities. Its insurance claim-paying ability rating is “AAA (Stable),” and its subordinated bond credit rating is “AA+ (Stable).”

The credit rating industry is focusing on the K-ICS Basic Capital Ratio system, which will take effect next year. Starting in January 2027, the K-ICS Basic Capital Ratio will serve as the standard for determining timely corrective actions and early redemption requirements for capital securities, with transitional provisions in effect for nine years. As of the end of last year, Kyobo Life Insurance’s K-ICS Tier 1 capital ratio before transitional measures was 82%, and after applying the transitional measures, the ratio stood at 130%, exceeding the 50% threshold for timely corrective action.

Jeong Won-ha, a senior researcher at NICE Ratings, predicted, “In the short term, the Basic Capital K-ICS ratio is expected to be improved through a reduction in required capital and capital increases via paid-in capital; in the medium to long term, the importance of retaining earnings is expected to grow.”

Researcher Jeong stated, “The burden of managing capital adequacy is expected to increase due to the large-scale maturity of early redemption dates for hybrid capital securities, the acquisition of SBI Savings Bank, and the gradual reduction in the effects of transitional measures,” adding, “Accordingly, we plan to strengthen our monitoring of the company’s K-ICS core capital ratio and core capital management strategies going forward.”