Korea’s new capital rules reduce insurers' capital burden

Under the revision, capital adequacy benchmark will be lowered to 130% to 140%.

Fitch Ratings expects South Korea’s new capital requirements to reduce insurers’ capital burden whilst increasing flexibility and capital quality. 

Announced by the Financial Supervisory Service on 12 March, the changes aim to address excessive reliance on capital security issuance, which could impact financial stability.

Under the revised Korean Insurance Capital Standard, the capital adequacy benchmark will be lowered to 130% to 140% from the current 150% by the first half of 2025. 

This adjustment will affect regulatory requirements tied to capital securities redemption, mergers and acquisitions, and licensing.

A new core capital ratio requirement will also be introduced to improve capital quality. Insurers will be required to maintain a minimum level of core capital, including paid-in capital and retained earnings, to strengthen financial resilience. 

However, authorities are unlikely to impose a significantly high ratio to avoid increasing capital costs.

Fitch notes that whilst the immediate impact of these changes may be limited, insurers are expected to refine their long-term strategies to ensure sustainable earnings whilst managing capital costs.