The Financial Services Commission announced on June 27 that the Korean Insurance Capital Standard (K-ICS) as a new capital adequacy regulation will be introduced in 2022 as previously scheduled yet a grace period of 10 to 20 years will be given at the same time.
The K-ICS is to measure the available capital-to-capital requirement ratios of insurance companies by applying market price valuation to their assets and liabilities. The standard is scheduled to be introduced in step with the implementation of IFRS 17 in 2022.
However, the commission is going to implement the standard in stages, taking into account the global regulatory trend. The grace period, which is to help South Korean insurance companies prepare for the new regulation, has to do with the fact that the completion of implementation of Solvency II in the European Union is scheduled for 2032. From 2022 to 2024 or 2025, the current Risk-based Capital (RBC) and the K-ICS may be simultaneously applied so that the companies’ shocks and risks can be mitigated and dispersed.
Those companies have expressed concerns over their burden attributable to the new standard. They must add tens of trillions of won to their capital to prepare for the new regulation by 2022. The commission’s decision is expected to alleviate their burden at least to some extent.