South Korea Eases Discount Rate Rules For Non-Life Insurers

KUALA LUMPUR, Dec 16 (Bernama) -- The recent easing of discount rate regulations by South Korea’s financial authorities will alleviate pressure on the solvency position of the country’s non-life insurers, according to a new AM Best commentary.

AM Best in a statement said the country’s non-life insurers are facing increasing solvency pressures due to declining market interest rates, together with the tightening of the discount rate calculation for insurance liabilities by its domestic regulators.

The report stated that a recently announced plan is expected to slow the pace of these cuts taking effect, which should ease the burden that insurers would face in securing their solvency positions.

In South Korea’s non-life insurance market, the discount rate used in liability valuation plays an essential role in determining balance sheet strength under IFRS 17 and the Korean Insurance Capital Standard (K-ICS), as the majority of the insurance book is structured as long-term contracts.

According to the global credit rating agency, the Financial Supervisory Service (FSS) has been actively involved in setting standards for the discount rate curves to enable better comparability within the industry.

The FSS had initially planned for a soft landing under IFRS 17 accounting standards that were implemented in 2023, allowing a higher discount rate at implementation, then phasing in discount rate decreases gradually until 2027.

However, interest rates have since fallen faster than expected, in which South Korea’s 10-year treasury bond yield has decreased from 3.85 per cent in August 2023 to 2.56 per cent at the end of April 2025, with a partial rebound to 3.34 per cent in the beginning of December 2025.

The report indicates that the FSS has revisited its plans related to lowering the discount rate and opted to slow the implementation pace to alleviate excessive capital pressures, based on industry feedback.

-- BERNAMA