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Regulator to take steps to get insurers to cut short-term currency hedging

All Headlines 09:44 March 14, 2019

SEOUL, March 14 (Yonhap) -- South Korea's financial regulator said Thursday it will take steps for insurance firms to reduce their exposure to short-term currency hedging products, in the latest measure to tackle weaknesses in the financial system.

Insurance firms here are required to gradually increase their capital reserves to better cope with changes in global accounting rules.

To raise capital reserves, most insurance firms sell foreign currency-denominated bonds, but such bonds often offer a short-term hedge against sharp fluctuations in foreign exchange rates, the Financial Services Commission (FSC) said in a statement.

Regulator to take steps to get insurers to cut short-term currency hedging - 1

The FSC said it will require insurance firms to set aside more capital if their exposure to short-term currency hedging is "excessive."

The requirement would let insurance firms lower their risk-based capital ratio, a barometer of their financial soundness, and they could cut short-term currency hedging, the FSC said.

The requirement will come into force during the fourth quarter of the year, the FSC said.

South Korea is one of more than 100 nations that will adopt the new global bookkeeping standard, known as the International Financial Reporting Standards 17, starting in January 2021.

When adopted, some insurers in South Korea will face capitalization pressure because the new rules require insurers to report liabilities based on their market value, instead of the book value of insurance policies.

kdh@yna.co.kr
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