The Financial Services Commission and the Financial Supervisory Service have announced their plan to improve the capital regulation in the insurance sector. This initiative aims to adjust the capital regulations established under the previous IFRS 4 and RBC systems to align with the current IFRS 17 and K-ICS framework. The key points are as follows:
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Strengthening Basic Capital Management under the K-ICS and Adjusting the K-ICS Ratio Benchmark of 150% |
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The ratio of basic capital, previously used only as a management evaluation criterion, will now serve as a mandatory compliance standard (i.e., conditions for timely corrective action).
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Currently, the K-ICS ratio of 150% serves as a supervisory criterion for capital regulation, including the conditions for early redemption of subordinated bonds. Authorities are considering lowering this ratio by 10-20%.
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Consequently, they plan to adjust the accumulation ratio requirements for surrender value reserves linked to the K-ICS ratio.[1] |
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B. |
Roadmap for Advancing Actuarial Supervision |
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The standards and methodologies for insurance liability evaluation will be reflected in the Detailed Enforcement Rules of the Insurance Business Supervisory Regulations.
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Actuarial experts will participate in the process of interpreting the IFRS 17 standards, ensuring that an actuarial view should be considered in interpreting IFRS 17.
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C. |
Improving Emergency Risk Reserve System |
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The limit for accumulating emergency risk reserves will be reduced by 10% or more to be consistent with recent empirical statistics, IFRS 17 and the K-ICS framework.
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Unrealistic conditions for reversing emergency risk reserves, such as the occurrence of net losses or insurance operating losses, will be eliminated, allowing for reversals of emergency risk reserves when a specific loss ratio (110-140%) is exceeded.
These initiatives are expected to reduce the insurance companies’ costs of issuing subordinated bonds and expand the capacity for shareholder dividends.
The supervisory authorities have indicated that they will finalize specific details of the proposed measures after a working task force review in the first half of this year, followed by stress testing and collection of industry opinions. They plan to proceed with the amendments to the Enforcement Decree of the Insurance Business Act and the Insurance Business Supervisory Regulations within the year.
[1] If the 20% reduction is adopted, the accumulation standard for surrender value reserves will change from the current K-ICS 190% or higher to K-ICS 170% or higher.
