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South Korean regulator pushes insurers to raise risk-based capital ratios

South Korea's Financial Supervisory Service is set to implement new regulations aimed at pushing local insurers to boost their risk-based capital ratios in stages, BusinessKorea reported June 1.

The move aims to prepare insurers for the adaptation of the International Financial Reporting Standards, or IFRS, in 2021. The new accounting standard is expected to increase the amount of insurers' debt on their balance sheets by at least 20 trillion South Korean won.

In preparation for the change, the regulator will alter its method of calculating risk-based capital ratio to push insurers to raise capital and improve debt and asset structures. The new method will extend the maximum duration of insurance liabilities used in calculating interest rate risk, creating a wider gap between the duration of assets and liabilities of insurers focusing on short-term asset management. This would effectively expose them to higher interest rate risks and lower their risk-based capital ratio unless they raise capital.

The regulator aims to implement the new rule in June but will allow insurers until December to adapt to the change.

Further, the FSS will require insurers with more variable insurance products with guaranteed minimum benefits to increase capital for those products. The regulator will increase the capital requirement by 35% late in 2017, and by 70% and 100% in 2018 and 2019, respectively.

As of June 1, US$1 was equivalent to 1,121.68 South Korean won.