By Park Na-eun and Minu Kim | Maeil Business News Korea | March 13, 2025
South Korea’s financial authorities are set to revise the key capital regulation for insurers, lowering the recommended solvency ratio (K-ICS) by 10 to 20 percentage points from the current 150 percent for the first time in 24 years.
Instead, regulators will introduce a new requirement based on insurers’ core capital, including paid-in capital and retained earnings, as part of a two-pronged strategy to improve the quality of capital.
The change is expected to curb the practice of issuing hybrid capital securities, which has been a common means of boosting regulatory capital.
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced on Wednesday that they discussed these measures during the seventh Insurance Reform Meeting held on Tuesday.
The authorities plan to establish a task force and conduct stress tests before finalizing the new K-ICS supervisory standards by mid-2025, with implementation set for the end-of-year financial statements.
One key revision under review is lowering the recommended K-ICS solvency ratio from 150 percent by 10 to 20 percentage points.
The K-ICS ratio measures an insurer’s available capital against the capital required to cover policyholder obligations.
While the legal minimum requirement is 100 percent, regulators have strongly recommended maintaining at least 150 percent.
The adjustment is aimed at relieving the financial burden on insurers, which has intensified since the adoption of IFRS 17 in 2023.
Under the new accounting standard, insurers have been required to hold significantly more capital to maintain solvency ratios.
As a result, required capital surged from 68 trillion won ($46.8 billion) at the end of 2022 to nearly 119 trillion won by the end of 2024, leading to a sharp decline in the K-ICS ratios of some insurers.
“Lowering the recommended solvency ratio will ease insurers’ capital accumulation burden, which is a positive step,” said an industry official.
In addition to adjusting the K-ICS solvency ratio, financial authorities will also introduce a mandatory core capital ratio requirement as a prompt corrective action standard, along with a disclosure obligation.
Previously, the core capital ratio was merely a subcomponent of the overall risk assessment and received little attention from insurers.
However, data shows that the core capital ratio fell from 145.1 percent in March 2023 to 132.6 percent in September 2024.
Unlike the general solvency ratio, the core capital ratio considers only fundamental financial resources, such as paid-in capital and retained earnings, while excluding supplementary capital raised through subordinated bonds or hybrid capital securities.