Financial authorities decided to extend the timing for expanding the last liquid point to 30 years from 2027 to 2035 to ease insurers' capital adequacy burdens. In contrast, oversight related to the asset-liability duration gap will be strengthened.
The Financial Services Commission said on Oct. 19 that the last liquid point will be expanded to 23 years in 2026–2027, 24 years in 2028–2029, and then by one year annually thereafter, reaching 30 years by 2035.
Insurers reflect Treasury bond yields when calculating the discount rate used to mark liabilities to market. Currently, the 20-year Treasury bond rate is reflected, so the last liquid point is 20 years. Financial authorities pushed to expand the last liquid point to 30 years, instructing that discount rates reflect yields on 30-year Treasurys.
When the last liquid point increases, the discount rate falls, the duration (maturity) of insurers' liabilities lengthens, and the duration gap between assets and liabilities widens. For insurers, the likelihood of deteriorating capital soundness rises. Reflecting concerns that expanding the last liquid point to 30 years could lower insurers' key soundness metric, the Korea Insurance Capital Standard (K-ICS) ratio, by an average of 19.3 percentage points, financial authorities decided to delay implementation.
Meanwhile, starting in 2027, financial authorities will newly incorporate a duration-gap metric into the supervisory review, and closely manage insurers with large gaps, including through executive interviews and demands for improvement plans. To that end, they will review each insurer's duration-gap status and management practices.