South Korea’s Financial Services Commission (FSC) will introduce a minimum core capital ratio for insurers from 2027 under the Korean Insurance Capital Standard (K-ICS), a move that will affect solvency metrics and capital planning for domestic carriers and regional groups with Korean operations. The changes form part of a broader package that also revises commission structures and distribution rules.

New core capital threshold under K-ICS

Yonhap News Agency reported that under the revised standard, insurers will be required to hold core capital equal to at least 50% of required capital as measured under K-ICS. Core capital will consist of instruments such as paid-in capital and retained earnings, rather than a wider set of hybrid or debt instruments. The new ratio is intended to ensure that insurers have sufficient resources to absorb losses in periods of financial stress or market volatility. The focus on instruments that qualify as core capital under K-ICS is expected to affect target capital structures, including the use of subordinated debt and the mix of capital across entities and business lines.

Because equity-type capital generally has a higher cost than subordinated or other non-core instruments, the requirement may increase funding costs for some insurers, especially those that have relied more heavily on hybrid capital to support growth or manage K-ICS positions. Insurers that fall below the 50% core capital ratio will be subject to corrective measures by the regulator. The FSC has indicated that a grace period will apply, giving companies time to adjust capital plans, review asset-liability management, and consider product or portfolio changes where needed. For regional groups, the reform adds another point of comparison as Asian supervisors continue to develop and refine risk-based capital frameworks.

Commission structures to move to longer payment periods

In a separate set of changes, the FSC has approved revisions to supervisory regulations that will lengthen the period over which sales commissions are paid to insurance agents. From January next year, commissions will be paid in instalments over four years, under a transitional arrangement expected to last two years. From January 2029, the standard commission payment period will extend to seven years. The revised structure introduces a “maintenance commission” paid in instalments over up to seven years, in addition to existing upfront commissions. This maintenance component will only be paid if the underlying contract remains in force.

According to The Asia Business Daily, an FSC official said: “From January next year, the four-year instalment payment will be implemented for two years, and from January 2029, the seven-year instalment payment will be introduced.” The official added that long-term maintenance commissions will be paid in years five to seven so that “the longer an agent maintains a contract, the higher the total commission they can receive.” By linking a greater share of remuneration to the duration of policies, the structure ties agent income more directly to contract retention.

1,200% cap and arbitrage rules extended to GA agents

From July, the FSC will expand the application of the “1,200% rule” to individual agents affiliated with corporate general agencies (GAs). The rule limits total commission in the first policy year to no more than 12 times the monthly premium. It currently applies to commissions paid from insurers to GA entities; under the revised approach, it will also apply to commissions paid directly to GA-affiliated agents. The regulator will also extend the period during which arbitrage behaviour driven by large upfront commissions is restricted. The current one-year restriction from contract inception will be lengthened to cover the entire duration of the insurance contract. These changes are expected to have implications for GA business models, commission design, and agent recruitment, particularly in segments with high first-year payouts and frequent policy replacement.

Disclosure obligations and product oversight to be expanded

From March, insurers and intermediaries will face new disclosure requirements on commissions and product offerings. Commission rates by product type will need to be compared and disclosed on the Insurance Association’s website, including a breakdown between upfront and maintenance commissions. GAs with more than 500 agents will be required to provide customers with a list of products from affiliated insurers when selling coverage. They must also explain the commission grade and ranking of recommended products, so that customers can see how remuneration differs between options.

On the insurer side, product committees will have a defined role overseeing the process from product development to sales. These committees will include executives responsible for products, compliance officers, and executives in charge of financial consumer protection. Their remit will cover product operation plans, including business expense levels, profitability reviews, and the risk of misselling. Both upfront and maintenance commissions will need to remain within the contract acquisition cost limits set at the product design stage.

Summarising the expected impact of the commission reforms, an FSC official said: “We expect this commission restructuring to normalize insurance contract retention rates,” adding that “consumer harm from unfair policy replacements will decrease, and agents will find it easier to secure stable income.” The official also said that insurers and GAs are anticipated to see “improved agent retention rates and greater stability in sales channels as contract retention rates rise.”