FSS summons CFOs of 14 insurers over foreign exchange risk

The Financial Supervisory Service called together the chief financial officers of major insurers Wednesday to demand preemptive management of foreign exchange risk, as widening won-dollar rate volatility has deepened uncertainty in financial markets. Concerns over misselling of dollar-denominated insurance products and the risk of losses in overseas alternative investments were at the top of the agenda.

The FSS held an emergency meeting with CFOs from 14 insurance companies at the Life Insurance Education and Culture Center in Gwanghwamun, Seoul, chaired by Deputy Governor Seo Yeong-il, who oversees the insurance sector. Participants included seven life insurers — Samsung, Hanwha, Kyobo, Shinhan, Mirae Asset, MetLife and AIA — and seven non-life insurers — Samsung, DB, Hyundai, KB, Meritz, Heungkuk and Korean Re — as well as the Korea Insurance Association.

Deputy Governor Seo urged insurers to weigh the full impact on their financial soundness and liquidity before pursuing new overseas investments. He particularly stressed that "indiscriminate expansion of speculative foreign-currency positions driven by expectations of further exchange rate gains must be curbed."

On currency-hedge derivative management, Seo warned that concentrating maturities at a single point in time could amplify exchange rate volatility and create rollover risk, and called on insurers to spread out maturity dates. He also said overseas alternative investments — including private credit funds — could suffer asset deterioration in a global market squeeze, and urged firms to secure sufficient loss-absorption capacity.

Misselling of dollar-denominated insurance products also emerged as a central issue at the meeting. Seo urged the industry to ensure consumers are thoroughly informed of exchange rate risks so they do not mistake dollar insurance for a currency-speculation product, and to strictly monitor compliance with suitability requirements.

Sales of dollar insurance — measured by first-year premiums — have fallen sharply since the start of the year. Monthly average sales of 233.5 billion won (about $154 million) in the January–March period dropped to 152.8 billion won in April and 112.4 billion won in May, roughly half the level seen at the start of the year. However, misselling concerns have resurfaced as the won-dollar rate has climbed back into the mid-1,500 won range.

An analysis by Korea Ratings of insurers covered by the Korean Insurance Capital Standard — known as K-ICS — found that a 100-won rise in the exchange rate reduces insurers' K-ICS ratios by an average of about 1 percentage point.

The FSS plans to conduct detailed reviews of each insurer's foreign exchange risk management practices in preparation for a potential renewed surge in market volatility, and to strengthen crisis-response capabilities through foreign-currency liquidity stress tests and other measures.