KDB Life Effectively in Total Capital Erosion…₩1 Trillion in Public Funds Needed

As of the end of last year, KDB Life Insurance has effectively fallen into a state of complete capital erosion, according to a report by Chosun Biz on the 18th.

With the sale of KDB Life stalled indefinitely, the insurer remains a subsidiary of the state-run Korea Development Bank (KDB), and additional public capital injections appear inevitable to normalize its operations. KDB has already invested over 1.5 trillion won into KDB Life, yet the insurer's financial soundness continues to deteriorate.

According to KDB Life's business report, total equity stood at just 61.3 billion won at the end of last year. Of this, 241 billion won consisted of hybrid capital securities, meaning the actual net equity excluding these instruments was -179.7 billion won.

This implies a capital erosion rate of 87.7% relative to its legal capital of 498.3 billion won, effectively placing the insurer in a state of complete capital erosion. Although hybrid capital securities are recognized as equity under accounting standards, they are considered liabilities in substance due to repayment obligations upon maturity.

Total assets dropped by more than 1 trillion won year-on-year to 17.7642 trillion won, while total liabilities increased by 1.2613 trillion won to 17.7029 trillion won.

The sharp reduction in equity was primarily driven by the fact that liabilities rose more than assets declined. Notably, falling interest rates were a key factor behind the capital deterioration. In the insurance industry, lower interest rates increase the valuation of liabilities more than that of assets, worsening accumulated other comprehensive income.

KDB Life’s accumulated other comprehensive income stood at -1.1608 trillion won at the end of last year—more than double the previous year’s figure.

Its risk-based capital ratio under the Korean Insurance Capital Standard (KICS) is also at a critical level. Prior to applying transitional measures, it stood at just 53%, far below the legal minimum of 100%.

However, with transitional measures applied, the ratio improved to 158.2%, slightly above the financial authorities’ recommended threshold of 150%. While penalties are currently deferred, further delays in normalization could lead to disruptions in insurance claims payments.

KDB acquired KDB Life (then Kumho Life Insurance) in 2012 and has been attempting to sell it since 2014, without success.

During this period, over 1.5 trillion won in public funds has been injected into the company, and an additional 600 billion to 1 trillion won is estimated to be needed to offset the capital erosion.

Industry experts warn that if KDB Life is designated as an insolvent financial institution, the impact on trust in the insurance industry and broader financial markets could be significant. KDB Life’s insurance liabilities amount to 16 trillion won—four times that of MG Non-Life Insurance.

KDB is currently pursuing normalization with the aim of selling the company, but as former KDB Chairman Lee Dong-geol once stated, “It was a company we should never have acquired,” renewed criticism over the initial acquisition decision is likely to resurface.


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KDB Life Effectively in Total Capital Erosion…₩1 Trillion in Public Funds Needed for Recovery