(Lotte Non-life Insurance)

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Lotte Non-life Insurance Co. is exercising a call option to redeem subordinated bonds, despite regulatory opposition.

On Thursday, the company announced it had initiated procedures to redeem 90 billion won ($64 million) worth of subordinated bonds.

“We are committed to protecting creditor rights and ensuring financial market stability,” it said.

The move, however, directly contradicts recent guidance from the Financial Supervisory Service (FSS), which warned that such a redemption would breach capital adequacy rules.

Under supervisory regulations, insurers can only exercise call options if their Korean Insurance Capital Standard (K-ICS) ratio exceeds 150 percent.

Lotte‘s ratio stood at 154.6 percent at the end of last year, but the FSS estimates it would drop to 127.4 percent after the redemption, which is well below the required threshold.

Lotte Non-life argues that its decision prioritizes investor protection and market stability, adding that it plans to finalize bondholder settlements first and engage with regulators afterward.

With the FSS taking a firm stance, a smooth resolution appears unlikely.

FSS Governor Lee Bok-hyun said on Thursday that the FSS would take “strict action in accordance with the rules.” A senior official from authorities indicated that prompt corrective measures—applied to insurers with capital adequacy issues—are under consideration.

The company contends that repayment will be made from its general account, posing no risk to policyholder assets. The FSS disagrees, stressing that capital requirements are designed to protect customer funds and warning against the notion that internal funds can be used freely without oversight.

Adding to the complications, the Korea Securities Depository (KSD), which holds the bondholder registry, has reportedly refused to release the list without FSS approval. As the bonds were issued publicly and sold to a wide range of retail investors, Lotte is unable to identify all holders independently.

The financial industry has voiced concerns that the standoff could undermine investor sentiment and weigh on the broader bond market. The FSS, however, downplayed the impact, noting that recent domestic bond market liquidity “remains strong.”

A Lotte Non-life official said the company respects the regulator’s stance but affirmed it will continue exploring options to protect investors, given that the call option process is already underway.