Financial authorities are pursuing a plan to lower the solvency ratio (K-ICS) standard that insurance companies are required to maintain from the current 150% to a maximum of 130%.
The Financial Services Commission and the Financial Supervisory Service noted on the 12th that they decided to pursue the 'capital regulation enhancement plan for the insurance industry' at the 7th insurance reform meeting held on the 11th.
Financial authorities are reviewing a plan to adjust the K-ICS standard for insurance capital regulation downwards by 10 to 20 percentage points, from 150%. K-ICS is an indicator showing an insurance company's ability to pay claims, reflecting the amount of available capital versus required capital. The mandatory compliance ratio is 100%, but authorities recommend maintaining it at a higher level of 150%. If the K-ICS falls below 100%, it becomes subject to prompt corrective action.
Financial authorities explained that there is a need to relax K-ICS regulations in accordance with the introduction of IFRS 17, the new accounting standards in the insurance industry for 2023. The required capital, which was 68 trillion won at the end of 2022 before the introduction of IFRS 17, nearly doubled to 119 trillion won by the end of September last year. While the required capital for maintaining the same solvency ratio significantly increased, the K-ICS regulations were maintained, resulting in a surge in capital securities issuance and intensified financial burdens such as interest costs.
Financial authorities plan to form a practical task force to finalize the changes to the K-ICS oversight standards through stress tests within the first half of the year and apply them starting from the year-end settlement of account.
Financial authorities plan to introduce a new mandatory ratio of basic capital solvency that includes loss-absorbing capital such as capital stock or retained earnings. Currently, insurance companies generally comply with the 50% basic capital solvency ratio indirectly, but authorities pointed out that it has only been used as a sub-item of the management assessment, leading to relative neglect in managing the quality of capital.