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Newsletter | December 2013
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INSURANCE |
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Consolidated Risk-Based Capital (“RBC”) System to be Implemented for Insurance Companies |
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On August 12, 2013, the Financial Supervisory Service (the “FSS”) announced its plan for an RBC system which will consolidate the RBC of an insurer’s subsidiaries (the “Consolidated RBC”).
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Background |
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The International Association of Insurance Supervisors (the “IAIS”) requires the capital adequacy of insurers to be evaluated on a consolidated basis and not on an individual basis. As a result, the FSS has introduced the Consolidated RBC system in accordance with the IAIS. |
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Comparison between the Current System and the Consolidated RBC |
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The current RBC system does not reflect the subsidiary’s risk in the RBC ratio as it calculates the RBC ratio based on the parent insurance company’s RBC amount of risk and capital. The Consolidated RBC system, however, should reflect the entire group’s risk and capital of the insurer because it will calculate the RBC ratio based on the consolidated financial statements that include its subsidiary’s assets, liabilities and equity. |
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Impact on the Insurers |
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As of March 2013, the Consolidated RBC ratio is 303.3%, which is 4.4% lower than the current RBC ratio (307.8%). |
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Benefits |
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The FSS announced that the Consolidated RBC system will (i) prevent a subsidiary’s default due to investing in high risk assets from transferring to the parent company since a subsidiary’s risk is reflected in the parent company’s RBC ratio, and (ii) enhance reliability and international integrity of Korea’s RBC system that meets international standards pursuant to the IAIS. |
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