Credit ratings agency AM Best said South Korea’s financial authorities have relaxed regulations on discount rates, a move expected to ease solvency pressure on the country’s non-life insurance companies.
Falling market interest rates, coupled with tighter rules for calculating discount rates, have created challenges for insurers’ capital adequacy. The report noted that the newly announced plan aims to slow the pace of reductions and provide relief for insurance companies to maintain solvency conditions.
In the non-life insurance industry, the discount rate used in liability valuation is critical to assessing balance sheet strength under IFRS 17 and K-ICS, given that most policies are long-term contracts. The Financial Supervisory Authority (FSS) has been actively developing discount rate curve standards to improve consistency across the industry.
Under IFRS 17, which will take effect in 2023, the FSS initially proposed a gradual adjustment: increasing the discount rate during implementation, and then reducing it in stages by 2027. However, rates are falling faster than expected. The 10-year Treasury yield fell from 3.85% in August 2023 to 2.56% at the end of April 2025, and then partially rebounded to 3.34% in early December 2025.
“With market interest rates lower than long-term forward rates, the impact of extending the final observation period becomes more severe,” added Seokjae Lee, senior financial analyst at AM Best. “The lower discount rate leads to higher insurance liability valuations, which could put adverse pressure on insurers’ capital adequacy and K-ICS ratios.”
According to the report, based on the opinions of the industry, the Financial Supervisory Authority revised the method of planning to reduce the discount rate and slowed down the implementation speed to prevent excessive strain on capital.