1.

Structure of Discretionary Asset Retained Co-Reinsurance

Under a co-reinsurance structure, all premiums, including not only risk premiums but also savings premiums and other premiums (sales premiums), are ceded to the reinsurer. Unlike traditional reinsurance, which primarily transfers insurance risk, co-reinsurance transfers interest rate risk, surrender risk, and other related risks. To date, co-reinsurance transactions in Korea have generally been structured as either (i) “asset transfer” type or (ii) “stipulated asset-retained” type.
 

• Asset Transfer Type: the ceding insurer transfers the reinsurance-related assets to the reinsurer. As a result, the ceding insurer is exposed to the reinsurer’s credit risk (including insolvency risk) and liquidity risk.

• Stipulated Asset-Retained Type: the ceding insurer retains the reinsurance-related assets and pays an agreed interest to the reinsurer. This has the downside that, during the co-reinsurance period, the reinsurer has limited involvement in the management of the reinsured assets, leading to relatively higher reinsurance costs.

In contrast, under the newly introduced Discretionary Asset Retained Co-Reinsurance structure, the ceding insurer continues to hold the underlying assets on its balance sheet, while the asset management rights and related operational profits and losses are attributed to the reinsurer. This structure reduces the ceding insurer’s exposure to credit and liquidity risks compared to the asset transfer type, and it can also lower reinsurance costs when compared to the stipulated asset-retained type. By introducing Discretionary Asset Retained Co-Reinsurance, which combines the advantages of the existing models, the FSS seeks to further promote the revitalization of co-reinsurance transactions.
 

2.

Amendments to Detailed Enforcement Rules of Insurance Business Supervision Regulations

Under the Discretionary Asset Retained Co-Reinsurance structure, the ceding insurer retains the assets related to the reinsured business, but the authority to manage those assets and the associated investment gains and losses are attributed to the reinsurer. Moreover, the FSS has revised the relevant provisions to ensure that investment gains and losses, along with other items attributable to the reinsurer are excluded from (i) the ceding insurer’s management status assessment, (ii) the calculation of its solvency margin ratio, and (iii) the calculation of its disclosure standard interest rate (i.e., these excluded items are to be omitted when calculating Appendix 13 (management status assessment), Appendix 22 (solvency margin ratio), and Appendix 27 (declared interest rate), respectively).
 

3.

Amendments to Co-Reinsurance Operational Guidelines

To facilitate Discretionary Asset Retained Co-Reinsurance transactions, the FSS has revised the Co-Reinsurance Operational Guidelines to provide guidance on specific accounting treatments and include FAQs. In particular, the Guidelines now provide illustrative examples of accounting treatments for each key transaction phase (e.g., contract execution, payment of reinsurance premiums, and settlement), outline key procedures for each operational stage, and include a set of FAQs.