The financial authorities will ease regulations to encourage insurance companies to invest in innovative enterprises.
According to financial authorities on the 3rd, the Financial Services Commission is reviewing measures to reduce the risk coefficients applied when insurance companies invest in the domestic long-term investment sector.
Insurance companies must consider risk coefficients when investing in long-term investment options, including policy funds such as a government-private joint fund worth 100 trillion won for investments in cutting-edge, venture, and innovative enterprises. According to current supervisory regulations, 0% risk coefficients apply to Government Bonds, 0.2% to 2.5% to high-grade corporate bonds, 2.9% to 12.7% to real estate project finance loans, 20% to 49% to stocks, and 20% to 25% to real estate holdings.
Lowering the risk coefficients will reduce the burden of managing soundness indicators during investment. A Financial Services Commission official noted, "Even under the current system, the risk coefficients for insurance companies' investments in social infrastructure are set lower than other assets, and similarly, we are looking into ways to apply reduced risk coefficients for investments related to policy funds."
The Financial Services Commission plans to set specific ranges and requirements for the reduction by considering overseas cases, as the European Union (EU) has recently eased regulations to promote insurance companies' policy program investments and by taking into account the opinions of the insurance companies.
The total assets of the insurance sector amount to approximately 1,200 trillion won. If investment is stimulated by reducing the risk coefficients, it is expected that at least several trillion won in new funds will flow into the innovation sector.
The financial authorities believe that this measure will also contribute to the comprehensive asset-liability management (ALM) of insurance companies. Insurance companies have been facing difficulties in capital soundness management since the introduction of new accounting standards (IFRS 17) and the new solvency regime (K-ICS), which evaluates liabilities at market value. A financial authority official said, "If insurance companies increase investments in productive areas, it can help diversify their asset portfolios, which are concentrated in bonds, and assist in asset and liability management as well."