The solvency ratio (K-ICS) that insurance companies are required to maintain will be lowered from the current 150% to 130%. The downward adjustment of K-ICS is expected to alleviate the burden of capital procurement for insurance companies.
The Financial Services Commission announced on the 29th that it will announce legislative and regulatory changes for the 'Insurance Business Act Enforcement Decree and Supervision Regulation Amendment' by June 9. The commission noted, 'This is a follow-up to the insurance reform plan announced in March, and we plan to complete the amendments by the third quarter.'
The amendment includes a provision to lower the supervisory standard of K-ICS, currently at 150%, for the early redemption and licensing requirements of subordinated bonds to 130%. This adjustment is the first in 24 years since 2001.
K-ICS is a financial soundness evaluation indicator that divides available capital by required capital, representing the ability of an insurance company to pay the insurance benefits promised to customers. It serves as the standard for allowing early redemption of subordinated bonds, insurance business licensing, and approvals for capital reductions or ownership of subsidiaries. If K-ICS falls below 100%, it becomes subject to corrective measures.
The Financial Services Commission also decided to delete the requirements for current net losses and insurance operational losses regarding the emergency risk reserve refund. The emergency risk reserve is a reserve accumulated to prepare for unexpected losses in general insurance. Even if there are no operational losses in the overall financial statements of insurance companies, they will be able to use reserves for loss coverage when the loss ratio exceeds a certain threshold for each insurance category.
The Financial Services Commission expects that this amendment will enhance the usability of the reserve system and improve the capacity for shareholder dividends.
The insurance business enforcement regulations also plan to realistically adjust the scale of reserve accumulation. The amendment expands the scope of work for simple insurance agents, who previously could only sell property and casualty insurance products, to also sell life insurance products, and adds long-term rental housing rental business to the types of businesses that subsidiaries of insurance companies can operate without prior approval or notification.