South Korea adjusts discount rate rules to ease solvency pressures on non-life insurers
South Korea’s financial authorities have relaxed regulations on discount rates, a move expected to ease solvency pressures for the country’s non-life insurers, according to credit rating agency AM Best.
Declining market interest rates, combined with stricter rules on discount rate calculations, have been creating challenges for insurers’ capital adequacy. The newly announced plan aims to slow the pace of these reductions, providing relief for insurers in maintaining their solvency positions, the report notes.
In the non-life insurance sector, 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 structured as long-term contracts. The Financial Supervisory Service (FSS) has been actively setting standards for discount rate curves to improve consistency across the industry.
Under IFRS 17, which came into effect in 2023, the FSS had initially proposed a gradual adjustment: a higher discount rate at implementation followed by phased decreases through 2027. However, interest rates declined faster than expected. The 10-year government bond yield dropped from 3.85% in August 2023 to 2.56% at the end of April 2025, before partially rebounding to 3.34% in early December 2025.
“The effect of extending the final observation period becomes more severe as the market interest rate is lower than the long-term forward rate,” added Seokjae Lee, Senior Financial Analyst, AM Best. “The lower discount rate leads to higher valuations of insurance liabilities, which can exert adverse pressure on the insurer’s capital adequacy and K-ICS ratios.”
Following input from the industry, the FSS revised its approach to the planned reductions in the discount rate, slowing implementation to prevent excessive capital strain, according to the report.
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