Insurance Companies' Reinsurance Business Requirements to Be Examined... Reinsurance Industry System Reform Planned

Insurance Capital Soundness Advancement Task Force 5th Meeting
Development of New Solvency Regime (K-ICS) 3.0
Quantitative Impact Assessment for All Insurers in the Second Half of the Year

Son Byung-du, Vice Chairman of the Financial Services Commission, is giving opening remarks at a meeting of financial institutions to support companies responding to COVID-19, held on the 23rd at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Oh Hyung-gil] To enter the reinsurance market, which is called the "insurance of insurance companies" by dispersing the risks of insurance contracts, companies will now need to obtain approval from the authorities. The categories for reinsurance approval will be subdivided, and capital requirements will be relaxed. The system will be improved so that reinsurance companies can play their proper role in enhancing the soundness of insurance companies.

On the 11th, the Financial Services Commission (FSC) held the 5th meeting of the Insurance Capital Soundness Advancement Task Force in the FSC main conference room, chaired by Vice Chairman Son Byung-doo, to discuss the direction of the reinsurance industry system reform based on these points.

According to the current Insurance Business Act, reinsurance is classified as a type of non-life insurance business. Accordingly, the approval requirements and business conduct regulations for reinsurance companies have been regulated almost identically to those for non-life insurance companies.

However, there have been claims that since reinsurance companies deal only with insurance companies, applying the same regulations as insurance companies during business operations requires regulatory relaxation from the consumer protection perspective.

Also, life and non-life insurance companies have obtained reinsurance approval without separate applications. The authorities have operated differently from other financial business approvals because there are no regulations to revoke approval even if insurance companies do not engage in reinsurance business.

Therefore, the FSC plans to separate reinsurance as a distinct business under the Insurance Business Act and to relax or differentiate regulations such as approval requirements and business conduct regulations.

When newly entering the insurance business and concurrently engaging in reinsurance, the supervisory authority will review the business plan and then grant approval. For existing insurance companies, the system will be changed to allow them to engage in reinsurance after confirming their intention to operate reinsurance and whether they meet business requirements.

Insurance Industry System Reform Plan (Source: Financial Services Commission)

Furthermore, the reinsurance business will be divided into life insurance, non-life insurance, and third insurance, and the approval requirements such as minimum capital for approval will also be relaxed. Currently, the capital requirement for reinsurance approval is 30 billion KRW, but after subdivision, the minimum capital requirement for each category will be lowered to 10 billion KRW, among other measures.

The FSC expects that relaxing the reinsurance approval requirements will lead to the emergence of specialized reinsurance companies and promote competition in the reinsurance market. The authorities plan to form a 'Reinsurance Industry Practical Task Force (TF)' this month with the Financial Supervisory Service, the Non-Life Insurance Association, and reinsurance companies to review system relaxation and submit a bill to amend the Insurance Business Act to the National Assembly by the end of the year.

Vice Chairman Son said, "Until now, reinsurance has been perceived more as a part of the non-life insurance business rather than as a partner to improve the financial soundness of insurance companies. We will encourage the emergence of specialized reinsurance companies and promote competition to revitalize the domestic reinsurance market."

Meanwhile, at the meeting, it was decided to prepare 'K-ICS 3.0,' which reflects amendments to international insurance capital standards based on the new solvency regime (K-ICS 2.0) and the characteristics of the domestic financial industry, and to conduct a quantitative impact assessment for all insurance companies in the second half of this year. They also discussed additional financial impact assessments for insurance companies following the implementation of International Financial Reporting Standards (IFRS 17).

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