Seoul: Local insurers will be required to adhere to a strengthened capital ratio requirement starting in 2027, as part of an initiative by the country's financial regulator to enhance capital quality. This new mandate was announced by the Financial Services Commission (FSC) on Tuesday, aiming to ensure that insurance companies have a robust capital base to withstand potential economic shocks.

According to Yonhap News Agency, the Financial Services Commission has outlined that the ratio of core capital to required capital will need to be set at 50 percent or higher under the Korean Insurance Capital Standard (K-ICS). This measure is designed to improve the quality of capital maintained by insurers, focusing on core elements like paid-in capital and retained earnings. The initiative is intended to safeguard the industry against financial stress and market volatility.

The new requirement is expected to impose a cost burden on insurers, as equity capital tends to be more expensive than other capital forms, such as subordinated debt. Insurers whose core capital ratio under the K-ICS falls below the specified 50 percent threshold will be subject to corrective actions. However, the FSC has indicated that a grace period will be provided to allow insurers time to adjust to the new standards.