South Korea's insurance sector has executed 4.4 trillion won in productive finance investments as of May, the Life Insurance Association reported on the 21st. The executed amount represents over 60 percent of the sector's total commitment of approximately 6.9 trillion won. Despite facing capital adequacy pressures from higher-risk productive assets that reduce solvency ratios, insurers continue aligning with government productive finance policies.
DB Insurance and NH Nonghyup Life Execute Strategic Productive Finance Investments
DB Insurance and DB Life recently invested 4.5 billion won and 1.5 billion won respectively in the Shinhan-DB Productive Finance New Technology Investment Partnership No. 1, jointly established by Shinhan Investment & Securities and DB Asset Management. The investments serve strategic purposes aligned with productive finance requirements.
NH Nonghyup Life successfully arranged project financing for a Battery Energy Storage System (BESS) project in the central contract market at the end of last month, marking the first such arrangement by an insurance company. The total commitment amount reached 164.9 billion won, with the NH-Amundi NH Korea Mutual Growth Fund and other funds established for productive finance investment purposes by NH Nonghyup Financial Group affiliates participating as lenders. NH Nonghyup Bank jointly performs the financial arrangement services.
In March, the insurance sector announced plans to supply a total of 40 trillion won to productive finance over the next five years, with approximately 8 trillion won—about 20 percent—allocated to the National Growth Fund.
K-ICS Ratio Drops Average 12 Percentage Points Under Current Capital Rules
Capital regulation burdens persist despite the sector's active investment moves. Productive assets increase capital volatility and lower the Korean Insurance Capital Standard (K-ICS) ratio due to their higher risk profile.
According to the Korea Insurance Research Institute, insurers' K-ICS ratios decline by an average of approximately 12 percentage points when investing in productive finance under current regulations. Rationalizing capital regulations to reflect the actual risk of productive finance would limit the K-ICS ratio decline to approximately 4 percentage points.
Choi Woo-seok, research fellow at the Korea Insurance Research Institute, proposed that K-ICS system amendments reflecting actual risk are necessary for the insurance industry to function as a long-term capital supplier for productive finance. An insurance industry official stated that while insurers' K-ICS ratios show overall improvement as market interest rates rise, easing capital regulation burdens remains necessary to sustain productive finance investments.
Financial Authorities Lower Risk Coefficients for Productive Finance Categories
Financial authorities recognize these field difficulties and are proceeding with system improvements. To activate productive finance, authorities lowered risk coefficients for policy programs, venture investments, qualified infrastructure, and other productive sectors.
FAQ
What amount has South Korea's insurance sector executed in productive finance as of May?
The insurance sector executed approximately 4.4 trillion won in productive finance investments as of May, representing over 60 percent of its total commitment of 6.9 trillion won, according to data from the Life Insurance Association and General Insurance Association released on the 21st.
How much does the K-ICS ratio decline when insurers invest in productive finance?
Under current regulations, insurers' K-ICS ratios decline by an average of approximately 12 percentage points when investing in productive finance, according to the Korea Insurance Research Institute. Rationalizing capital regulations to reflect actual risk would limit the decline to approximately 4 percentage points.
What did the insurance sector announce in March regarding productive finance commitments?
In March, the insurance sector announced plans to supply a total of 40 trillion won to productive finance over the next five years, with approximately 8 trillion won—about 20 percent of the total—allocated to the National Growth Fund.
