South Korea Adjusts Discount Rate Rules to Ease Non-Life Insurer Solvency Challenges

South Korea's Financial Supervisory Service (FSS) has relaxed regulations concerning discount rates used in the valuation of non-life insurance liabilities. This regulatory adjustment comes in response to declining market interest rates, which had heightened solvency pressures on insurers by increasing the present value of insurance liabilities under accounting frameworks such as IFRS 17 and the Korean Insurance Capital Standard (K-ICS). A lower discount rate elevates liability valuations, adversely affecting insurers' capital adequacy and solvency ratios. The FSS originally planned a phased reduction of discount rates through 2027 but has now slowed this pace to mitigate excessive capital strain as actual market interest rates declined more rapidly than anticipated. This regulatory flexibility is intended to support non-life insurers' balance sheet stability amid fluctuating government bond yields, which dropped notably between August 2023 and April 2025 before a partial recovery in December 2025. AM Best highlights how the extended observation period for setting discount rates intensifies pressures when market rates fall below long-term forward rates. The industry’s feedback played a role in shaping this revised regulatory approach, illustrating active dialogue between regulators and insurers to balance prudential standards with market realities.