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Solvency (K-ICS)

Korea Insurance Capital Standard (K-ICS) is Korea’s new capital adequacy regulation which takes effect in January 2023. The K-ICS is to measure the available capital to capital requirement ratios of insurance companies by applying market price valuation to their assets and liabilities.

Transitional measures not applied Transitional measures applied
2023.09 2023.06 2023.03 2023.09 2023.06 2023.03
Available Capital 259.4 257.3 244.8 261.7 259.5 246.9
Required Capital 128.5 127.5 123.6 116.7 116.1 112.8
Capital Adequacy Ratio 201.8% 201.7% 198.1% 224.2$ 223.6% 218.9%
  • 2023.09: Available capital under K-ICS came in at KRW261.7 trillion as of end-September 2023, up KRW2.2 trillion from three months earlier. Insurance contract liabilities shrank amid rising interest rates and new insurance contracts increased in the July-to-September period, which contributed to the growth in available capital from three months earlier. Furthermore, required capital under K-ICS grew KRW0.7 trillion to KRW116.7 trillion at the end of September 2023. In particular, lapse risk expanded by KRW3.6 trillion compared to three months earlier while market risk decreased KRW0.9 trillion. This resulted in increasing life/long-term insurance risk by KRW2.2 trillion.
  • 2023.06: Available capital under K-ICS came in at KRW259.5 trillion as of end-June 2023, up KRW12.6 trillion from three months ago. Accumulated other comprehensive income expanded KRW5.9 trillion in April-to-June period, and the contract service margin (CSM) came to be regarded as available capital. These contributed to the increase in available capital of the insurance companies. Furthermore, required capital under K-ICS grew by KRW3.3 trillion to KRW116.1 trillion at the end of June 2203. In particular, market risk expanded by KRW3.7 trillion from three months ago, which contributed to the growth in required capital.
  • 2023.03: Required capital expanded from KRW67.9 trillion at the end of December 2022 to KRW123.6 trillion at the end of December 2023. Under K-ICS, required capital is calculated based on newly added insurance risks (longevity, expenses, surrender and catastrophe) as well as confident level increases from 99.0% to 99.5%. These changes made required capital expand from three months earlier. Meanwhile, available capital grew KRW2.1 trillion because of a transitional measure on capital decrease while required capital decreased KRW10.8 trillion due to transitional measures on newly added risks. With transitive measures applied, K-ICS ratio rose 20.9%p (compared to K-ICS ratio without transitive measures application).
K-ICS RatioTransitional Measure
RBC v.s. K-ICS
Classification Previous RBC K-ICS
Available Capital Asset Valueation Fair Value, Historical Cost Fair Value
Liability Valueation Historical Cost Fair Value
Required Capital Risk Category Insurance Risk Life/Long-Term Insurance Risk
General P&C Insurance Risk
Interest Rate Risk Market Risk (incl. Interest Rate Risk)
Market Risk
Credit Risk Credit Risk
Operation Risk Operation Risk
Risk Measurement Risk Coefficient Shock Scenario
Confidence Level 99% 99.5%
Solvency Margin Ratio Requirement Solvency Margin Ratio ≥ 100% (= Available Capital / Required Capital)

Life

Company K-ICS RBC
2023.09 2023.06 2023.03 2022.12
Samsung 220.5 223.5 219.5 244
Hanwha 184.3 180.4 181.2 162.2
Kyobo 183.2 179.6 156.0 180.6
NH 167.1 170.6 175.5 147.4
Heungkuk 112.4 108.6 105.4 152.2
Mirae Asset 204.4 209.7 218.4 179.6
Shinhan 209.4 214.3 225.5 267.7
KDB 60.0 67.5 47.7 162.5
DB 200.8 202.9 202.4 141.9
KB 277.0 270.7 285.1 248.4 (Prudential)
130.5 (KB Life)
IBK 64.3 79.8 68.7 182.8
DGB 150.5 150.5 158.5 119.0
Hana 132.5 121.6 119.7 186.3
Kyobo Life Planet 182.6 175.4 163.8 261.0
Tongyang 183.7 162.5 162.2 173.2
MetLife 282.4 315.3 311.7 188.8
ABL 109.1 113.2 111.4 198.6
AIA 234.0 244.5 241.1 290.8
Fubon Hyundai 5.0 5.6 -0.6(1) 171.2
BNP Paribas Cardif 205.4 309.7 359.7 499.2
LINA 317.0 315.9 311.2 286.5
Chubb Life 200.1 202.6 198.2 121.9
Total 195.9 196.2 192.6 206.4

(1) Fubon Hyundai Life Insurance’s net assets decrease according to market valuation in a situation where there is a large asset-liability duration gap. Solvency ratio is expected to increase due to paid-in capital increase and issuance of capital securities.

Non-life

Company K-ICS RBC
2023.09 2023.06 2023.03 2022.12
Samsung 263.3 274.3 275.2 285.0
DB 214.5 219.1 210.5 170.8
Hyundai 172.1 185.4 178.6 174.6
KB 194.0 192.6 194.0 171.7
Meritz 230.8 205.7 202.2 165.7
Hanwha 190.4 177.5 176.7 153.3
Lotte 148.9 143.1 137.7 150.8
Heungkuk 160.7 132.3 132.3 163.3
NH 226.1 240.1 237.7 210.0
MG 50.1 62.1 65.0 43.4
Hana 160.9 163.5 162.4 217.2
Carrot 172.3 201.2 262.5 505.5
Kakao Pay 6,455.8 2,155.6 1,354.8 1,957.1
AXA 245.8 235.0 230.8 234.2
AIG 280.6 267.1 259.9 404.2
ACE 304.0 297.0 290.0 371.6
Mitshui Sumitomo 196.8 182.2 182.6 302.1
Allianz 184.5 184.2 178.1 323.6
Shinhan EZ 406.8 654.1 491.5 620.7
First American 131.6 129.5 131.0 258.4
Korean Re 187.3 190.3 184.0 180.8
Swiss Re 168.4 179.5 207.3 198.1
SCOR Re 137.2 140.5 140.2 183.3
RGA 200.4 179.7 179.2 345.8
Munich Re 164.9 146.2 138.5 133.9
General Re 313.1 291.9 291.8 413.2
Hannover Re 226.3 201.3 200.8 246.5
Tokio Marine 315.2 222.8 268.7 291.9
Pacific Life Re 142.4 147.4 150.0 253.7
Habit Factory 442.9 498.0 540.5 3,429.6
SGI 408.8 406.4 413.3 381.9
Total 210.6 210.0 206.2 205.1
Total 19 companies (12 life and 7 non-life) apply transitional measures.
Solvency II v.s. K-ICS
Classification Solvency II K-ICS
Available Capital Recognition period for previously issued capital securities 10 years 10 years
Gradual reflection of increase in insurance liabilities 16 years 10 years
Required Capital Gradual reflection of newly introduced risks 4 years (spread / concentration risk) 10 years (longevity, lapse, expense, catastrophe risk)
Gradual reflection of equity risk 7 years 10 years
Gradual reflection of interest rate risk – 10 years
Delay of timely corrective action 2 years 5 years
Extension of reporting and disclosure deadline 4 years 3 years
Selective Application
  • Gradual recognition of increase in mark-to-market insurance liabilities (TTP): 10 years
    1) (Method) Gradually deducting the “capital reduction” due to mark-to-market valuation of insurance liabilities during the elapsed period (if 2 years have passed since the previous evaluation or if the interest rate has changed by 50bps since e previous evaluation, all companies apply TTP must deduct the “capital deduction” recalculation
    2) (Condition) Subject to life / long-term non-life insurance liabilities, if K-ICS insurance liabilities at the time of initial application are greater than current insurance liabilities
  • Gradual recognition of newly introduced insurance risk (TIR): 10 years
    1) (Method) If the first year of implementation, all calculated new insurance risks are excluded (application rate of 0%), and the application rate is raised equally thereafter
    2) (Condition) Longevity risk, expense risk, lapse risk and catastrophe risk among general non-life insurance risks
  • Gradual recognition of increase in equity risk (TER): 10 years
    1) (Method) If the first year of implementation, only 60% of the calculated equity risk is recognized as required capital, and the application rate is raised equally thereafter
    2) (Condition) When 60% of the K-ICS equity risk is greater than the RBC equity risk
  • Gradual recognition of increase in interest rate risk (TIRR): 10 years
    1) (Method) If the first year of implementation, only 60% of the calculated interest rate risk is recognized as required capital, and the application rate is raised equally thereafter
    2) (Condition) When 60% of the K-ICS equity risk is greater than the RBC equity risk

    Application rate by year

    Application Year 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
    TTP application rate 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
    TIR application rate 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
    TER & TIRR application rate 60% 64% 68% 72% 66% 80% 84% 88% 92% 96%
  • Delay in timely corrective action when insolvent: 5 years
    Even if the K-ICS ratio is less than 100% after applying transitional measures at the time of introduction, timely corrective action is postponed if RBC ratio exceeds 100%. A management improvement agreement is conducted, and the grace period will be cancelled if the contents of the management are not implemented during the grace period.
Common Application
  • Expansion of the scope of recognition of available capital for capital securities previously issued before implementation of the system: 10 years
    1) (Basic capital) In the case of hybrid capital securities issued before the implementation of the system, they do not fall under the basic capital under K-ICS, but are recognized as basic capital
    2) (Supplementary capital) All supplementary capital securities issued before the implementation of the system are recognized as supplementary capital, even if the amount exceeds the supplementary capital limit
  • Extension of business report submission and disclosure deadlines: 3 years
    1) The submission deadline for K-ICS related financial reports and management disclosures has been extended by 1 month during the elapsed period
    2) (Quarterly reporting) 2 months → 3 months (Annual reporting) 3 months → 4 months
Operating Standard
  • Apply through prior reporting process
    1) (Insurance company) Prepare and report the necessary documents to apply transitional measures
    2) (Supervisory authority) Review the consistency of submitted documents and notify whether or not they are accepted
  • Prior reporting period and required documents, etc.
    1) (Reporting period) Report within 2 months (expected on February 28, 2023) after the introduction of the system (January 1, 2023)
    2) (Required documents) Differentiations according to K-ICS ratio (based on 100%) before applying transitional measure
  • Follow-up management after reporting
    1) (Securing the adequacy of the results of applying transitional measures) Submit an adequacy verification report on the results of applying transitional measures included in the business report every quarter
    2) (Inducing self-rescue efforts) In the case of companies with a K-ICS ratio of less than 100% before applying transitional measures, the improvement plan implementation performance should be submitted after reporting to the board of directors every year (until the end of the improvement plan)
  • Measures to prevent abuse of transition measures
    1) Imposition of disclosure obligation regarding application of transitional measures
    2) RAAS assessment grade upper limit (maximum 3 grades)
    3) Reduction of remaining elapsed period in case of excessive outflow of capital
Company 2023.09 K-ICS 2023.06 K-ICS 2023.03 K-ICS Effect of Each Transitional Measure 2023.03
Before After Before After Before After Difference Available Capital Required Capital
Capital Reduction Insurance Equity Interest Rate
Life
Kyobo 183.2 276.6 179.6 269.4 156.0 232.4 +76.3 – -23,122 -3,511 –
NH 167.1 309.9 170.6 338.6 175.5 325.5 +150.0 – -9,732 -1,155 -7,117
Heungkuk 112.4 185.6 108.6 165.7 105.4 152.7 +47.3 – -6,709 -748 –
KDB 60.0 134.1 67.5 140.7 47.7 101.7 +54.0 +3,430 -2,722 -1,769 –
DB 200.8 399.0 202.9 384.1 202.4 361.0 +158.7 – -5,863 – –
IBK 64.3 178.7 79.8 178.3 68.7 165.9 +97.3 +2,190 -734 -259 -1,230
DGB 150.5 310.8 150.5 288.2 158.5 294.8 +136.3 – -1,840 -562 –
Hana 132.5 184.7 121.6 165.4 119.7 159.5 +39.8 +458 -428 -356 –
Kyobo Life Planet 182.6 313.0 175.4 288.2 163.8 254.4 +90.6 – -171 -35 –
ABL 109.1 168.1 113.2 172.2 111.4 163.6 +52.3 – -2,646 -1,238 –
Fubon Hyundai 5.0 163.8 5.6 144.5 -0.6 128.3 +128.9 +12,701 -637 -1,172 -2,288
Chubb Life 200.1 421.3 202.6 402.4 198.2 386.0 +187.8 – -717 – –
Non-life
Hanwha 190.4 283.1 177.5 260.9 176.7 254.4 +77.7 – -9,895 – –
Lotte 148.9 208.4 143.1 190.2 137.7 178.3 +40.6 – -4,276 – –
Heungkuk 160.7 272.3 132.3 211.5 132.3 204.0 +71.7 – -6.043 -827 -709
NH 226.1 306.0 240.1 332.7 237.7 330.2 +92.6 – -3,102 – –
MG 50.1 64.5 62.1 80.0 65.0 82.6 +17.5 – -1,349 -285 -506
AXA 245.8 297.0 235.0 277.0 230.8 267.0 +36.3 – -288 – –
SCOR Re 137.2 161.9 140.5 166.8 140.2 166.3 +26.1 – -553 – –
Total 139.8 218.9 +79.1 +18,779 -80,827 -11,917 -11,851