South Korea’s new capital regulations are set to ease the financial strain on insurers while enhancing their flexibility and the overall quality of their capital, according to Fitch Ratings.
The changes, announced by the Financial Supervisory Service (FSS) on March 12, are aimed at reducing insurers’ dependence on capital security issuance, which could pose risks to financial stability.
Under the revised Korean Insurance Capital Standard, the capital adequacy benchmark will be lowered to a range of 130% to 140%, down from the current 150%. This change will take effect by the first half of 2025 and will impact key regulatory requirements, including those related to capital securities redemption, mergers and acquisitions, and licensing.
Additionally, a new core capital ratio will be introduced to enhance the quality of insurers’ capital. The updated rules will require insurers to maintain a minimum level of core capital, which includes paid-in capital and retained earnings, to bolster their financial resilience. However, regulatory authorities are unlikely to set the ratio too high in order to avoid placing undue pressure on insurers’ capital costs.
While the immediate effects of these changes are expected to be minimal, Fitch anticipates that insurers will adjust their long-term strategies, focusing on sustainable earnings and efficient capital management.
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