The Financial Supervisory Service (“FSS”) announced the introduction of “Discretionary Funds Withheld Coinsurance,” with the stated intent to revitalize the domestic coinsurance market. This new framework addresses certain limitations inherent under the current models (e.g., asset transfer type and traditional funds withheld coinsurance) by allowing the ceding insurer to retain the assets while the management authority and investment income/loss of the assets are attributed to the reinsurer (so-called “Discretionary Funds Withheld Coinsurance”). To facilitate this new framework, the FSS has amended the Insurance Business Supervision Regulations and the Coinsurance Operational Guidelines.
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Amendments to the Insurance Business Supervision Regulations |
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Profits and losses from the management of the assets under a Discretionary Funds Withheld Coinsurance are to be excluded from the ceding insurer’s management status assessment, solvency ratio, and calculation of its declared interest rate.
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Amendments to the Coinsurance Operational Guidelines |
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The FSS has provided illustrative examples of accounting treatments applicable to Discretionary Funds Withheld Coinsurance transactions.
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Ceding insurers must comply with asset management limits applicable to the assets being managed under Discretionary Funds Withheld Coinsurance arrangements.
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Investment returns and losses generated from assets managed under Discretionary Funds Withheld Coinsurance arrangements must be reflected in the calculation of the reinsurer’s declared interest rate.
These amendments will take effect as of October 28, 2025.
