"New Insurance Solvency System... Important Role of Supervisory Authorities"

Boheomyeon 'Changes and Future Development Directions of Insurer Solvency Systems' Seminar Held

[Asia Economy Reporter Jin-ho Kim] An event was held to explore ways to develop the Solvency Margin System, which promotes the financial soundness of the domestic insurance industry and contributes to enhancing the stability and efficiency of insurance companies' management. The Solvency Margin System is a system that requires insurance companies to hold sufficient capital to absorb unexpected losses.

The Korea Insurance Research Institute and the Korean Risk Management Society jointly held a seminar on the 13th under the theme "Changes in the Solvency Margin System of Insurance Companies and Future Development Directions." The seminar was organized to review the past 10 years of the Risk-Based Capital (RBC) system, a financial soundness system for insurance companies, and to explore the development direction of the Solvency Margin System under the new insurance accounting standard (IFRS17) to be introduced in 2023.

Experts who presented at the seminar all emphasized the active role of financial authorities regarding the new Solvency Margin System (K-ICS) to be introduced in 2023.

No Geon-yeop, a research fellow at the Korea Insurance Research Institute, stated, "The K-ICS system alone is insufficient for adequate risk assessment and preparation," and emphasized, "Regulators should encourage insurance companies to establish an appropriate Own Risk and Solvency Assessment (ORSA) framework."

He added, "It is necessary for regulators to conduct operational inspections and support the introduction of internal models to enable the operation of the Solvency Margin System considering the characteristics of insurance companies."

He also suggested that the system should support insurance companies to actively respond to capital volatility through various risk management tools and fulfill their roles as long-term investors. He said, "Since capital volatility intensifies due to the market valuation of liabilities, conditions should be created for insurance companies to utilize various risk management tools," and "The Solvency Margin System should be designed to induce long-term investment by insurance companies by referring to cases from major overseas countries."

Professor Lee Hang-seok of Sungkyunkwan University also stated, "Efficient design and operation of the Solvency Margin System by regulators is important." Professor Lee emphasized this while introducing domestic and international research results on the costs and benefits of operating the Solvency Margin System and its impact on consumer welfare and insurance companies' decision-making.

Meanwhile, Lee Tae-gi, a team leader at the Financial Supervisory Service representing the authorities at the seminar, said, "We will prepare for the introduction of the K-ICS system considering the 2023 market valuation of liabilities, limitations of the RBC system, and changes in the international solvency margin system paradigm."

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