New Core Capital Minimum Reshapes Insurer Solvency Planning
From 2027 on, South Korea’s Financial Services Commission will set a minimum core capital ratio for the Korean Insurance Capital Standard. The rule says that insurance companies must have core capital that is at least 50% of the required capital levels.
Core capital will focus on paid-in equity and retained earnings instead of hybrid or subordinated instruments. The goal of this change is to make it easier for insurers to handle losses when the market is stressed.
Source: (Re)in Asia
Capital Composition Changes Affect Funding Strategies
The focus on equity-type capital is likely to change how insurers mix their capital and manage their balance sheets. Historically, many insurance companies have used hybrid instruments to keep their solvency in check.
Funding costs may go up because core capital is usually more expensive than subordinated debt. After a regulatory adjustment period, insurers below the threshold will have to take corrective action.
Grace Period Allows Insurers Time to Adjust Structures
Regulators said that there will be a grace period before any enforcement actions are taken. This gives businesses the chance to change their plans for capital and how they manage their assets and debts.
During the transition, insurers may also look at their product portfolios and how they allocate group capital. Regional groups doing business in Korea need to think about how the change will affect the bigger Asian capital markets.
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Longer Commission Payment Timelines Approved
The FSC approved changes to the way insurance commissions are paid, along with reforms to capital. Commissions for agents will slowly move toward longer payment periods with installments.
Next year, commissions will be paid over 4 years as part of a transition period. Standard commission payments will last for 7 years by 2029.
Maintenance Commissions Tied to Policy Retention
Agents will only get paid for maintenance work if the insurance contracts stay in effect. This makes it easier to connect agent pay to keeping customers for a long time.
When policies last longer, agents will be able to get higher total commissions. Regulators hope that this will stop short-term sales that are driven by upfront payments.
Expansion of the 1200% Commission Cap
The FSC will raise the first-year commission limit to 1200% for agents who are part of GA. Before, the limit only applied to corporate agencies.
The ban on commission-driven arbitrage will also be in effect for the whole policy term. This could change the way businesses offer recruitment bonuses and commissions.
Enhanced Disclosure and Product Oversight Rules
Starting in March, insurance companies and brokers will have to publicly show how much they make in commissions for each type of product. Customers will be able to compare upfront and maintenance commissions more easily.
Consumers must also be told by big general agencies about product rankings and commission grades. Product committees will be in charge of making sure that products are profitable, safe for consumers, and not sold in a way that is misleading.
