Fitch Ratings said South Korea’s revised capital requirements for insurers are expected to ease funding pressures and promote a shift toward more stable capital sources.
The new rules, introduced by the Financial Supervisory Service (FSS), lower the capital adequacy threshold and implement a new measure focused on capital quality, reflecting the regulator’s aim to balance solvency oversight with financial flexibility.
The changes, announced on March 12, include a reduction in the capital adequacy benchmark under the Korean Insurance Capital Standard (K-ICS).
The threshold, currently set at 150%, is expected to be adjusted downward to between 130% and 140% during the first half of 2025. This ratio, which evaluates an insurer’s available capital against regulatory capital requirements, plays a critical role in decisions around M&A, licensing, and redemption of hybrid capital instruments.
Fitch analysts said the regulatory adjustment is likely a response to insurers’ increasing use of subordinated capital instruments, a trend that has raised concerns over financial resilience in volatile markets.
“The regulator’s imposition of a minimum limit of core capital, such as paid-in capital and retained earnings, is intended to ensure that insurers maintain a sound capital base to absorb potential shocks in adverse scenarios of financial stress or market volatility,” they said.
At the same time, the FSS will introduce a core capital ratio requirement to ensure that a minimum portion of insurers’ reserves consists of higher-quality assets such as paid-in capital and retained earnings.
This measure aims to increase the resilience of the capital base to potential market or credit shocks. While the regulator is not expected to mandate a high threshold that would significantly raise funding costs, the change could influence how insurers structure their capital going forward.
The agency anticipates that the immediate market response to the revised framework will be limited, but over the longer term, it may prompt a shift in capital management strategies toward more sustainable earnings models.
The analysis comes as demographic and economic conditions are reshaping the insurance landscape in South Korea.
According to a GlobalData forecast, the insurance market is set to expand from KRW 218.3 trillion (US$167.1 billion) in 2025 to KRW 249.7 trillion (US$191.2 billion) by 2029.
The primary growth driver is increasing demand for retirement and health-related coverage in response to the country’s rapidly aging population.
Life and pension insurance are projected to represent 84% of direct written premiums in 2024. After a contraction in 2023, modest recovery is expected this year as consumers seek financial stability through long-term policies.
General insurance is also on a growth path, with premiums expected to rise 4.9% in 2024. In contrast, motor insurance could see stagnant growth due to weaker auto sales amid rising interest rates and cautious consumer sentiment, as reported by the Korea Automobile Mobility Industry Association.
Additionally, exposure to natural hazards continues to influence policy demand. Government data recorded over 30,000 fire incidents by October 2024, with damages totalling KRW 589.9 billion (US$456 million). This is expected to further support demand for property and catastrophe-related insurance.
