South Korea’s Financial Supervisory Service (FSS) has announced new capital requirements aimed at reducing the capital burden on insurers while enhancing financial flexibility and capital quality. The revised rules, unveiled on 12 March 2025, seek to address concerns over the excessive reliance on capital security issuance, which could potentially jeopardize the stability of the financial sector.
The changes, set to take effect by the first half of 2025, lower the capital adequacy benchmark for insurers from the current 150% to a range of 130% to 140%. This adjustment is expected to ease the capital burden for insurers and reduce their reliance on complex financial instruments to meet regulatory requirements. The new capital standards will have significant implications for areas such as capital securities redemption, mergers and acquisitions, and licensing processes.
In addition to the capital adequacy adjustment, the FSS will introduce a new core capital ratio requirement aimed at improving the overall quality of insurers’ capital. Insurers will now be required to maintain a minimum level of core capital, which includes paid-in capital and retained earnings, to strengthen their financial resilience and ensure long-term stability. However, authorities have indicated that the required core capital ratio will not be set too high, in order to avoid placing additional burdens on insurers.
Fitch Ratings has indicated that, while the immediate impact of these changes may be limited, insurers will likely adjust their long-term strategies to ensure sustainable profitability while managing capital costs. The revisions are seen as a step toward a more flexible and resilient insurance market in South Korea.
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