Financial regulators will introduce core capital requirements starting in 2027 and impose prompt corrective action on insurers whose solvency ratio falls below 50% under the Korea Insurance Capital Standard (K-ICS).
Core capital excludes supplementary capital such as subordinated debt and hybrid securities. The new rules raise concerns for small and mid-sized insurers that currently have low core capital K-ICS ratios or limited capacity to raise capital.
The Financial Services Commission recently disclosed the implementation plan for core capital K-ICS regulations to domestic insurers, according to financial industry sources on Wednesday.
Currently, regulators set the threshold at 130% for the total K-ICS ratio, which includes supplementary capital. Beginning in 2027, additional regulations will apply to the core capital K-ICS ratio, which only counts paid-in capital and retained earnings.
Specifically, insurers with core capital K-ICS ratios below 50% will face prompt corrective action, requiring them to pursue capital increases and other financial improvement measures. Sources inside and outside the regulatory body said authorities are considering issuing management improvement recommendations for ratios between 0% and 50%, and management improvement orders for ratios below 0%.
Regulators have also reportedly set 80% as the recommended level for core capital K-ICS ratios. While mandatory action is triggered at 50%, insurers are effectively expected to maintain at least 80% at all times.
However, regulators will provide a transition period through 2035. Insurers subject to transitional measures due to core capital K-ICS ratios below 50% must submit annual improvement targets to regulators. Even if an insurer fails to meet its target, it will be given one year before regulators reassess whether to impose prompt corrective action the following year.
For example, if Insurer A records a core capital K-ICS ratio of 10% at the end of Q1 2027, it must submit annual targets through 2035 to regulators. If Insurer A fails to meet its target by 2028, it will face prompt corrective action. Even if it exceeds the target at the end of Q1 2028, it will be subject to corrective action review again if performance falls short of the plan by the end of Q1 2029. Regulators reportedly plan to impose prompt corrective action immediately without a one-year grace period for insurers with core capital K-ICS ratios below 50% starting in 2036, after the transition period ends.
The calculation method for core capital will also be slightly adjusted. Notably, insurers with K-ICS ratios exceeding 180% will be allowed to reflect 100% of surrender value reserves when calculating core capital. Last year, regulators allowed insurers with K-ICS ratios above 180% to set aside only 80% of surrender value reserves, but the full amount can be included when calculating core capital. However, authorities have decided not to pursue the industry's request to include contractual service margin (CSM) in core capital. CSM represents the present value of expected future profits from insurance contracts.
As core capital K-ICS regulations take shape, insurers are under pressure to strengthen their capital positions, industry observers said. Insurers with core capital K-ICS ratios in the 50% range, such as Hyundai Marine & Fire Insurance (59.7%) and Hanwha Life Insurance (57%), face immediate challenges. Lotte Non-Life Insurance (-15.7%) is also expected to need a capital increase within one year. Insurers have traditionally met regulatory thresholds by issuing subordinated debt, but they must now comply with core capital K-ICS requirements through capital increases or accumulated net profits.
"It is true that pressure for paid-in capital increases has grown among insurers," a senior insurance industry official said.
Analysts note that insurers subject to transitional measures will be under constant regulatory oversight, as authorities will effectively monitor compliance with core capital K-ICS targets submitted by insurers each year.
"This will inevitably be more disadvantageous for small and mid-sized insurers with limited capacity to raise capital," another insurance industry official said.
