Meritz Fire & Marine to issue $63 mn new shares to bolster capital base

South Korea’s Meritz Fire & Marine Insurance Co. will be recapitalized by 70 billion won ($63.2 million) through placement under its parent Meritz Financial Group Inc. to help bolster its capital base ahead of the 2021 new accounting standards.

Under the rights offering plan approved by the board of Meritz Fire & Marine Insurance on Wednesday, 3,342,000 common shares will be allocated to the main shareholder at 20,950 won apiece, bringing the new capital to 70 billion won once they go listed on July 20.

Shares of Meritz Fire & Marine Insurance closed Friday up 0.51 percent at 19,800 won.

The additional purchase will up the holding entity’s ownership in the insurer to 53.4 percent.

“This is a preemptive move to boost the insurer’s capital reserves in preparation for the International Financial Reporting Standard (IFRS) 17 Insurance Contracts,” said a Meritz Financial Group official.

Insurers in Korea are under pressure to bolster their capital base before the IFRS17 rules come into force in 2021, which require financial institutions to report liabilities on a mark-to-market basis rather than book value.

Meritz Financial Group is Korea’s first financial holding company to be centered on insurance, an anomaly in a country where most financial holding entities had sprawled from banks. In addition to Meritz Fire & Marine Insurance, other companies under its umbrella include Meritz Securities, Meritz Capital, Meritz Asset Management and Meritz Real Estate Asset Management. The firm was listed on the country’s main Kospi bourse in 2011.

KB Securities on Thursday recommended investors to hold shares in Meritz Fire & Marine Insurance, although lowering its price target by 4.5 percent to 21,000 won. “While the new offerings are expected to improve the insurer’s risk-based capital, its RBC ratio of 180 percent is still too high to be considered stable,” the brokerage said.

Risk-based capital refers to the minimum amount of capital necessary in an insurance company to sustain its operations. Capital requirements are set depending on the size and degree of risk taken by the insurer.

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