The supervisory standard for the solvency ratio (K-ICS) that insurance companies are required to comply with will be lowered from the current 150% to 130%. The downward adjustment of K-ICS is expected to ease the capital procurement burden for insurance firms.
The Financial Services Commission noted at a regular meeting on the 11th that the revised insurance industry supervision regulation containing this content has been approved and will be applied immediately. The commission accelerated the relaxation of regulations by a month earlier than initially planned.
The revision lowers the supervisory standard for subordinated bond early repayment and licensing criteria from the current 150% to 130%. This is the first downward adjustment in 24 years since 2001.
K-ICS is a financial soundness evaluation index calculated by dividing available capital by required capital, indicating an insurance company's ability to pay promised insurance benefits to customers. It serves as a standard for subordinated bond early repayment approval, insurance business licensing, capital reduction, or subsidiary ownership authorization. If K-ICS falls below 100%, it becomes subject to prompt corrective action.
A Financial Services Commission official said, "The new recommended criteria were established by comprehensively considering the results of stress tests during the complex crisis situation in the insurance sector, the reduction in interest rate volatility compared to the previous solvency system (RBC), and examples from the banking sector."
The revision deletes the requirements for current net losses and insurance operating losses regarding the withdrawal of emergency risk reserves. The current supervisory regulation requires satisfying three conditions simultaneously to withdraw the emergency risk reserves: exceeding a certain loss rate per item, current net loss, and insurance operating loss.
Emergency risk reserves are funds set aside to prepare for unexpected losses in general insurance. The deletion of the related requirements comes in response to criticism that the existing withdrawal conditions were excessively strict.
To enhance the insurance companies' soundness management system in the second half of this year, the Financial Services Commission plans to launch an 'insurance industry soundness task force (TF)' this month, involving the Financial Supervisory Service, the insurance industry, research organizations, and experts. The TF will review the details of the soundness management system's enhancement strategies and the appropriate pace for implementation.
Based on the TF discussions, the Financial Services Commission will prepare strict soundness principles and enforcement measures to be finalized in the second half of the year.