Insurance and Reinsurance in South Korea 2024

INSURANCE AND REINSURANCE 2024

SOUTH KOREA

Myung Soo Lee, Hwang Lim Jang, Chongsu Seo, Seung Jae Yeon, Chang Hun Han

(Yoon & Yang LLC)

REGULATION

Regulatory agencies

Identify the regulatory agencies responsible for regulating insurance and reinsurance companies.

In Korea, the Financial Services Commission (FSC) is vested with the authority to actively supervise the business activities of insurance and reinsurance companies through licensing, approval or regulation of certain activities. The FSC is a national administrative agency falling under the jurisdiction of the Korean Prime Minister’s Secretariat Office, established under the Act on the Establishment of the Financial Services Commission (the FSC Act) to principally carry out financial supervisory and regulatory duties. Concerning insurance and reinsurance businesses, the FSC is responsible for the licensing of insurance and reinsurance businesses; the establishment and amendment of the Insurance Business Act (IBA), its enforcement decrees, its enforcement regulations and subordinate insurance supervisory regulations; and overall supervision and regulation of insurance and reinsurance businesses. For that purpose, the FSC may issue necessary orders affecting every level of an insurance company’s operations, require an insurance company to submit documents and have the Financial Supervisory Service (FSS) review them, and also investigate insurance holders, insureds, and interested persons suspected of violating the IBA and related laws and regulations.

The FSS is a special purpose, zero-capital corporation established under the FSC Act, and is responsible for the examination and supervision of insurance companies under the guidance and supervision of the FSC. In particular, the FSS examines the affairs and status of assets of insurance companies and, depending on the results of the examination, it may sanction insurance companies. The FSS also supports the FSC and its subordinate agencies in the performance of their duties.

Formation and licensing

What are the requirements for formation and licensing of new insurance and reinsurance companies?

To engage in the insurance or reinsurance business, an insurance business license must be obtained before the commencement of business. Persons qualified to obtain an insurance business license are joint-stock companies, mutual companies and foreign insurance companies (branch). The establishment of insurance companies in the form of a joint-stock company is based on the Commercial Code, whereas the establishment of insurance companies in the form of a mutual company is based on the IBA.

A company that intends to engage in the insurance or reinsurance business must obtain a license from the FSC for each category of insurance business. Insurance businesses are subdivided into life insurance business, damage insurance business and ‘third category insurance business’ (miscellaneous other). A company that has received a license for any such insurance business category is deemed to have received a reinsurance license for the same insurance business category (deemed approval for reinsurance business).

To apply for an insurance business license (the Principal license), the applicant must file an application with the FSC, together with a copy of its articles of incorporation, business plan for the first three years after starting the business (including pro forma financial statements), a document outlining the methods of operating each category of the insurance business that the applicant is seeking to manage, insurance terms, documents prescribed by the Enforcement Decree among the documents outlining methods of computing insurance payments and liability reserve, and other documents prescribed by the Enforcement Decree. Also, the applicant seeking to apply for the Principal license may file an application to the FSC for a preliminary license in advance. The FSC, after receiving this application, shall notify the applicant within two months on whether it has decided to grant the preliminary license. The FSC may impose conditions on the preliminary license and shall issue the Principal license if the recipient of the preliminary license applies for one after satisfying the conditions imposed on the preliminary license.

The requirements for a domestic insurance company to acquire an insurance business license are as follows:

the company must maintain a minimum amount of paid-in capital or funds of at least 30 billion won (however, if the company only seeks to engage in some of the previously mentioned insurance categories, the Enforcement Decree could vary the amount of paid-in capital or funds, for each of the relevant insurance categories, so long as the amount is 5 billion won or more; also, for an insurance company soliciting the funds through means of communication such as telephone, mail or computers, the company is eligible as long as it maintains a paid-in-capital or funds equivalent to or more than two-thirds of the amount previously mentioned as required; namely, 20 billion won or more);
the company must maintain material facilities such as specialized personnel and data processing facilities necessary to engage in the insurance business;
the company’s business plan must be reasonable and sound; and
the company’s large shareholder must be qualified as prescribed under article1 (Qualifications for Executive Officers) of the Act on Corporate Governance of Financial Companies (ACGFC), must have adequate capital contribution capability and sound financial condition and must not have previously engaged in conduct that harmed the sound economic order.

The requirements for a foreign insurance company (branch) to acquire an insurance business license are as follows:

the company must maintain a minimum amount of working capital of 3 billion won;
the company must maintain material facilities such as specialized personnel and data processing facilities necessary to engage in the insurance business;
the company’s business plan must be reasonable and sound;
the company must be engaged in the same insurance business, pursuant to foreign laws and regulations, in which it intends to engage in Korea; and
the company’s status of assets, financial soundness and operational health must be adequate for it to engage in the insurance business in Korea, and recognized

Small-term specialized insurance companies, which were newly introduced to encourage new business entities with innovative technology and ideas to enter the insurance landscape, may be established with a minimum capital of 2 billion won. They may offer any kind of insurance, except for long-term (pension, long-term care) and high-capital (nuclear, automobile) insurance. With that being said, considering their relatively low financial strength, small-term specialized insurance companies are subject to a limit of one year for insurance term, 10 million won for maximum insurance payment per insured, and 500 billion won for annual premium income.

In the past, the FSC has maintained a one-company-one-license policy that allows only one life insurance company and one damage insurance company per financial group. However, the FSC recently relaxed this policy, stating that even if a damage insurance company already exists in the group, the FSC will prospectively allow additional insurance companies that specialize in different products, such as pet insurance, to enter the market.

Other licenses, authorizations and qualifications

What licenses, authorizations or qualifications are required for insurance and reinsurance companies to conduct business?

No license, authorization or qualification, other than an insurance business license, is required for insurance and reinsurance companies to conduct business in Korea. Under the current laws and regulations, a party that has obtained a license for a certain insurance business category is also deemed to have received a reinsurance license for the same insurance business category.

Officers and directors

What are the minimum qualification requirements for officers and directors of insurance and reinsurance companies?

The ACGFC governs qualifications to be an ‘officer’ of an insurance company, defined as a director, statutory auditor, executive officer (limited to cases where an executive officer appointed under the Commercial Act exists) or operating officer, and stipulates that a person falling under the following categories may not be an officer of an insurance company:

a person who is a minor, a person under adult guardianship or a person under limited guardianship;
a person who was declared bankrupt and who has not been reinstated yet;
a person who was sentenced to imprisonment without forced labor or a heavier punishment, and five years have not yet elapsed since he or she completed, was deemed to have completed or was exempted from the sentence;
a person who was sentenced to probation for imprisonment without labor or a heavier punishment, and is still within the probation period;
a person who was sentenced to a criminal fine or a heavier punishment under the ACGFC or any other finance-related statute, and five years have not yet elapsed since he or she completed, was deemed to have completed or was exempted from the sentence;
a person who is, or was, an officer or an employee of a financial company that has been subject to any of the following measures (limited to persons specified by Enforcement Decree of the ACGFC as directly liable or reasonably responsible for the cause subjecting the company to such measures), and five years have not elapsed since the measures were taken against the company:
revocation of permission, authorization or registration for the business under finance-related legislation;
a measure of timely correction under article 10.1 of the Act on the Structural Improvement of the Financial Industry (ASIFI); or
an administrative disposition under article 14.2 of the ASIFI;
a person who was subject to sanction under the ACGFC or any other finance-related legislation for his or her conduct as an officer or employee (or a notice equivalent to the sanction in the case of a retired or resigned person), and for whom the period specified by the Enforcement Decree of the ACGFC, which cannot exceed five years for each sanction category, has not yet passed since he or she was subject to sanction; or
a person who is designated by the Enforcement Decree of the ACGFC as someone who may undermine the public interest and sound management of the relevant financial company or credit order.

The ACGFC governs qualifications to be an outside director of an insurance company and stipulates that an outside director of a financial company must be a person that has practical experience in research and investigation or working in finance, business management, economics, law, accounting, consumer protection or information technology, et cetera, or a field related to the financial business of a financial company, and a person that the same financial company judges as having abundant expertise or practical experience required to perform the duties of an outside director. The ACGFC stipulates that a person falling under any of the following categories may not be an outside director of a financial company (however, a person who falls under the category of a specially related person of the largest shareholder by becoming an outside director under the first point below, may be qualified as an outside director):

the largest shareholder or a specially related person of the largest shareholder (an executive officer or an employee of a corporation, if the largest shareholder or the specially related person of the largest shareholder is a corporation);
a major shareholder, spouse or lineal ascendant or descendant of a major shareholder (an executive officer or an employee of a corporation, if the major shareholder is a corporation);
a person who serves as a full-time executive officer, employee or non-standing director of the relevant financial company or its subsidiary (a subsidiary defined by article 2(3) of the Monopoly Regulation and Fair Trade Act) or who served as a full-time executive officer, employee or non-standing director during the preceding three years;
the spouse or lineal ascendant or descendant of an executive officer of the relevant financial company;
a full-time executive officer or employee of the company for which an executive officer or employee of the relevant financial company serves as a non-standing director;
a person who serves as a full-time executive officer or employee of a corporation that has an important business relationship as defined by the Enforcement Decree, or a competitive or cooperative business relationship with the relevant financial company, or who served as a full-time executive officer or employee of such corporation during the preceding two years;
a person who has served as an outside director of the relevant financial company for at least six years, or who has served as an outside director of the relevant financial company or its subsidiaries for at least nine years in total; or
a person specified by the Enforcement Decree, on any other grounds, as a person who has difficulty performing his or her duties faithfully as an outside director of the financial company or who is likely to influence the management of the relevant financial company.

Capital and surplus requirements

What are the capital and surplus requirements for insurance and reinsurance companies?

An insurance company that intends to handle all types of insurances in each insurance business category may begin to engage in the insurance business after contributing a minimum of 30 billion won in paid-in capital or funds.

However, an insurance or reinsurance company that intends to engage in only some of the insurance business categories is obliged to contribute a minimum amount of paid-in capital or funds, which varies according to the business category, namely:

30 billion won in the case of reinsurance or surety insurance business;
20 billion won in the case of life insurance, pension insurance (including retirement insurance) and motor vehicle insurance business;
15 billion won for marine insurance (including flight and transportation insurance);
10 billion won in the case of fire insurance, liability insurance, accident insurance, sickness insurance and nursing insurance business; and
5 billion won for technical insurance, claim insurance and other insurance businesses categories not previously mentioned.

If an insurance company engages in two or more insurance business categories, the minimum paid-in capital amounts for all of them is combined, but if the combined total amount is more than 30 billion won, the minimum paid-in capital amount is capped at 30 billion won. If an insurance company (excluding small-term specialized insurance companies) solicits customers through telecommunication, such as by telephone, email or computers as prescribed by the Enforcement Decree, it may start to engage in the insurance business after contributing the equivalent of two-thirds or more of the minimum amount of paid-in capital or funds. A small-term specialized insurance company that meets the standards prescribed by the laws and regulations, such as types of insurance products, insurance period, upper limit of insurance proceeds, and upper limit of total annual insurance premiums may contribute 20 billion won in either paid-in capital or funds.

If a foreign insurance or reinsurance company intends to engage in insurance or reinsurance business in Korea, the minimum amount of working capital required is 3 billion won.

Reserves

What are the requirements with respect to reserves maintained by insurance and reinsurance companies?

An insurance company shall set aside and record the liability reserve and the emergency reserve amount every settlement term and for each category of insurance contract in a separate ledger to cover future payment obligations such as insurance payments, refund payments and contractor dividends (insurance payments and others). An insurance company shall set aside each of the following amounts as liability reserve:

insurance contract liabilities: the sum of the amounts classified as follows:

accident elements: the amounts accumulated by applying current estimates of future cash flows to pay insurance proceeds, et cetera that have become payable under the insurance contract as of the end of each period for the settlement of accounts;
residual guarantee elements: the amounts accumulated by applying current estimates of future cash flows to pay insurance proceeds, et cetera under the insurance contract in the future although any cause for payment of the insurance proceeds, et cetera has not occurred as of the end of each period for the settlement of accounts;
investment contract liabilities: the amounts accumulated by an insurance company to pay insurance proceeds, et cetera in the future for insurance contracts that are classified as investment contracts because they are not subject to the accounting standards No. 1117 under Article 5(1) 1 of the Act on External Audit of Stock Companies; and

other amounts accumulated by applying current estimates of future cash flows in accordance with the methods determined by the Financial Services Commission.

If the insurance company is registering in a reinsurance case that has imputed insurance risks and can cause loss to the company that obtained the reinsurance through the reinsurance agreement at issue, the insurance company that obtained the reinsurance shall accumulate liability reserve for the parts that it obtained reinsurance, and the insurance company shall record such accumulated amount of liability reserve as a separate asset in its ledgers.

Insurance companies with total assets of 1 trillion won or more (including those dealing with insurance items whose payable ability is important even if total assets are less than 1 trillion won) are required to acquire verification by an independent actuary or insurance premium rate calculation agency regarding the appropriateness, et cetera, of the liability reserves calculated based on the above calculation method. In addition, verification by an external institution on the adequacy of liability reserves is now mandatory in light of the new international accounting standard in insurance, International Financial Reporting Standard 17 (IFRS 17). Insurance companies as mentioned in this paragraph are required to receive verification on the adequacy of the liability reserves as well as the premise used to generate and assess the liability reserves from an external institution on an early basis. The verification cannot be obtained from the same external institution for more than three consecutive business years.

Further, an insurance company operating a damage insurance business shall, to prepare for damages that exceed the number of liability reserves, appropriate an emergency liability reserve according to the standards provided by the FSC, provided that it does not exceed 50 percent (in the case of a surety insurance, 100/150) of the total amount of insurance amounts for the business year at issue.

Insurance and reinsurance companies are required to comply with certain standards on financial soundness prescribed by the Enforcement Decree of the IBA to ensure their ability to pay out insurance proceeds and the soundness of their operations, as follows:

insurance companies must maintain a payment reserve ratio (payment reserve amount divided by payment reserve standard amount) of 100 percent or higher;
as of 2023, insurance companies must comply with the Korea-Insurance Capital Standard (K-ICS) based on Asset-Liability Present Value Evaluation, which replaces the previous payment reserve policy, and which was implemented to reflect IFRS 17;
insurance companies must periodically classify the soundness of assets owned by the company such as claims for loans, and must accumulate a certain amount of allowance for bad debts;
insurance companies must establish and operate a reinsurance risk management strategy to manage financial soundness related to reinsurance agreements, and establish and operate an internal control system to execute this strategy;
insurance companies must create and manage any documents that record all materials and data such as documents and details concerning reinsurance agreements (including magnetic tape diskettes and other data preservation devices);
insurance companies must retain 10 percent or more of the insurance risk of individual general damage insurance (excluding vehicle insurance) that was acquired by individual agreements to cover a reasonable amount of business expenses, such as for acquiring and retaining insurance risk; however, this shall not be the case if the risk management commission (a commission that may be established to deliberate and resolve matters on risk management within the board of directors of an insurance company under the Enforcement Decree of the Regulation on Supervision of Insurance Businesses) determines that it is difficult to retain 10 percent or more of the insurance risk considering the specialty of the insurance contract, risk analysis, or financial conditions of the company, among others, or if the insurance company that acquired the reinsurance agreement signs for the reinsurance concerning the reinsurance agreement again;
insurance premium rate calculation agencies are required to prepare and manage a list of qualified reinsurers, taking into account whether they satisfy the soundness standards as prescribed by domestic and overseas regulators and credit ratings from an assessment conducted within the past three years by an internationally recognized credit rating agency;
coinsurance contracts must be entered into in a form that sets out a certain ratio in advance (i.e, proportional reinsurance contract) in relation to the acceptance of the reinsurance fee and payment of insurance proceeds between the insurance company and the insurance company that acquired the reinsurance contract; and
insurance companies that acquire proportional reinsurance contracts must be qualified reinsurers, and in the event the insurance company loses its status as a qualified reinsurer, the insurance company must submit its plans to address and handle the proportional reinsurance contract.

Product regulation

What are the regulatory requirements with respect to insurance products offered for sale? Are some products regulated by multiple agencies?

Insurance or reinsurance companies are required to prepare basic documents on insurance products that they intend to handle, and when an insurance or reinsurance company intends to prepare or modify such basic documents, it is required to file a report with the FSC in advance, if it falls under any one of the following:

if a new insurance product is introduced, or subscription to an insurance product is mandated pursuant to an enactment or amendment of law; or
if an insurance product is prescribed by the Enforcement Decree as required for the protection of insurance policyholders.

When reporting basic documents, the insurance company, as a general rule, must file an insurance product report with the FSS by no later than 30 days before the scheduled date of sales of the insurance product. However, if the contents of the basic documents change in accordance with amendments of other laws and regulations, the insurance product report must be filed before the scheduled date of sales. The FSS can then recommend a modification of the basic documents within 20 days of the report being received. In principle, the basic documents of products that do not fall under any of the categories as described above do not have to be reported to the FSC in advance. However, the FSC may require insurance companies to submit materials related to the basic documents of such products if the FSC deems such submissions necessary concerning the protection of insurance policyholders and other relevant equivalent factors.

The standards for the review of insurance products are prescribed by the Guidelines on Review of Insurance Products, which are a type of enforcement rule of the FSS. The guidelines provide for the following requirements:

the insurance product shall not include anything that violates the IBA or any other law;
the insurance product shall not include anything disadvantageous to the insurance holder such as the reduction of insurance holder’s rights or the expansion of the insurance holder’s obligation unless there is adequate cause;
the insurance payment amounts, liability reserve and refund amounts for cancellation shall be computed and accumulated according to the standards prescribed and announced by the FSC;
the insurance product shall not violate the standards and regulations prescribed for limitations to operating two or more businesses in the life insurance or damage insurance businesses under the IBA or any other related law; and
other than the above, the insurance product shall keep up with standards prescribed and announced by the FSC that are necessary for protecting the insurance holder, maintaining financial soundness, and so on.

Regulatory examinations

What are the frequency, types and scope of financial, market conduct or other periodic examinations of insurance and reinsurance companies?

Insurance companies are required to close their accounting books on 31 December of each year and to submit their business reports, financial statements and supplementary schedules, audit reports, and documents regarding the amortization of funds and payment of interest borne on the funds to the FSC within three months of the account book closing. They are also required to submit a report stating monthly business details to the FSC by the last day of the following month.

Insurance companies are also required to occasionally report the following matters:

if an insurance company comes to hold a subsidiary, it must submit the articles of incorporation, documents containing the category of work and goods regulations, shareholder status, financial statements and marketing reports – such as statement of financial position and profit and loss statements, et cetera, of the subsidiary and the current status of any companies in which the subsidiary holds more than 10 percent of the total shares – to the FSC within 15 days of the date on which it came to hold the subsidiary; and
if an insurance company comes to submit financial statements and marketing reports – such as statement of financial position, profit and loss statements and the current status of the main business activities of its subsidiaries and other documents – to the FSC within three months of the end of the business year of such subsidiary.

If an insurance company amends its articles of incorporation, it must inform these amendments to the FSC within seven days of the amendment.

Moreover, insurance companies must report any of the following to the FSC within five days of its occurrence:

a change in its company or trade name;
the suspension or resumption of business of its head office;
a change of its largest shareholder;
a change in the number of shares held by its large shareholders by an amount of 1 percent or more of the total number of issued voting shares of the company;
an increase in capital or funds;
a resolution to change its organization;
any punishment or sanction under article 13 of the IBA;
any tax delinquency or punishment for violating tax laws;
any overseas investments under the Foreign Exchange Transactions Act, or the establishment of places of business and other offices in foreign countries; or
any litigation against the insurance company by a shareholder or a former shareholder.

Also, according to the ACGFC, insurance companies must report an appointment or dismissal (including resignation) of an officer to the FSC and disclose this information on the company website without delay.

Finally, the FSC may order insurance companies to submit a list of their shareholders or a report of their business (and related materials) in connection with the inspection obligation of the FSC under the IBA to protect the public interest and the policyholders. In conjunction with this inspection, the FSS may, as necessary, require an insurance company to file a report on its business or assets, submit relevant material, summon relevant employees and provide testimony. Once the previously mentioned inspection is complete, the FSS must take necessary measures pursuant to the result of the inspection and report its findings to the FSC.

Under the Act on External Audit of Stock Companies (the External Audit Act), the Securities and Futures Commission, which is under the FSC, if required, may request that an insurance company or its related company (that owns at least a certain percentage of the relevant company’s shares as prescribed in the Enforcement Decree of the External Audit Act), and an external auditor appointed by an insurance company, submit materials, state their opinion or draft reports; or may have the FSS inspect the accounting books and documents of an insurance company or its related company, or investigate its duties and the status of the property to carry out supervision on whether the audit report submitted by the auditor complies with accounting audit standards and whether the financial statements submitted by the company comply with accounting standards.

The inspection operation method will be improved so that if any violations or irregularities under the jurisdiction of other inspection departments are discovered during the inspection process, the inspection can be directly in consultation with the department in charge . In addition, according to the operating plan, in 2024, the regular inspection of insurance companies will standardize the linked inspection of General Agencies (GA) that sell insurance products (affiliated companies) for the first time, and regular inspections of very large GAs will be conducted. In 2024, a total of seven regular inspections and 80 random inspections of insurance companies will be conducted.

Investments

What are the rules on the kinds and amounts of investments that insurance and reinsurance companies may make?

Insurance companies must ensure stability, liquidity, profitability and the public interest in managing their assets, and must manage their assets under the duty of care.

Insurance companies may not manage their assets in the following manner:

possession of real estate (excluding any real estate acquired by exercising a security right such as a mortgage) other than ones prescribed by the Enforcement Decree of the IBA as for business purposes;
possession of real estate through special accounts;
provision of loans for speculation in goods and securities;
provision of loans, directly or indirectly, for purchasing their own shares;
provision of loans, directly or indirectly, for political funds;
provision of loans to their executives or employees (excluding loans provided pursuant to insurance terms or loans of a small amount as prescribed by the FSC); and
foreign exchange transactions or derivatives trading that do not satisfy conditions set by the FSC, or any acts announced by the FSC as acts that may significantly undermine asset management soundness.

Also, the IBA imposes a limit on the ratio of the total assets that insurance companies may commit to specific investments (e.g, granting credit to the same entity, owning bonds and stocks of the same entity). Limitation ranges from 3 percent to 60 percent of the total assets in the case of general accounts, and 5 percent to 50 percent in the case of special accounts (which are accounts for use related to retirement insurance contracts under the Act on the Guarantee of Employees’ Retirement Benefits). However, insurance companies are exempt from the foregoing limitation by approval from the FSC if:

there has been a change in asset status owing to any change in the price of their assets, the exercise of security rights or other involuntary reasons;
such exemption is necessary to comply with the financial soundness standards under article 123 of the IBA; or
such exemption is necessary to protect the interests of policyholders.

However, if the asset management ratio is exceeded due to (1), the same insurance company must conform to the asset management ratio within one year from the date the ratio is exceeded.

Insurance companies, in principle, may not:

own more than 15 percent of voting shares of any other company (this excludes instances where stocks of companies in the business approved by the laws or regulations are approved by the Financial Services Commission, where stocks of companies in the insurance industry are reported to the Financial Services Commission and where stocks of companies in asset management business are reported to the Financial Services Commission);
swap their voting shares for those of another financial institution or another company to avoid the above-described asset management limitations imposed by articles 106 and 108 of the IBA or the restriction on acquisition of own shares imposed by article 341 of the Commercial Code and article 165(3) of the Financial Investment Services and Capital Markets Act; or
engage in any other acts prescribed by the Enforcement Decree as acts that may significantly undermine the profits of the insurance holder.

Insurance companies may not exercise the voting rights attached to the shares if acquired by violating the above-mentioned conditions.

Further, insurance companies are also prohibited from directly or indirectly extending credit to their large shareholders (this includes related parties of the large shareholder at issue, but excludes a subsidiary of the insurance company) for investment in another company, and from gratuitously transferring their assets as prescribed by the Enforcement Decree, or otherwise purchasing, selling, exchanging or entering into reinsurance contracts under terms that are clearly unfavorable to them compared with prevailing industry standards. Finally, if an insurance company intends to extend credit to a large shareholder in an amount greater than 0.1 percent of its shareholders’ equity or 1 billion won (whichever is less), or acquire bonds or shares issued by such large shareholder in an amount greater than 0.1 percent of its shareholders’ equity or 1 billion won (whichever is less), the transaction must be subject to a unanimous resolution of the board of directors in advance. If (2) occurs, the insurance company is obliged to report to the FSC on the occurrence of such within seven days of its occurrence and to publicly announce it via internet homepages, etc.

Change of control

What are the regulatory requirements on a change of control of insurance and reinsurance companies? Are officers, directors and controlling persons of the acquirer subject to background investigations?

According to the Insurance Business Act, the concept of ‘large shareholder’ is as defined by the Act on Corporate Governance of Financial Companies, and means a legal shareholder falling under any of the following:

a person and any related party of such person who collectively holds the largest number of the issued and outstanding shares (includes depositary receipts related to such shares) with voting rights of the insurance or reinsurance company, regardless of in whose name the shares are held, as long as they are calculated as held by this person;
a person (so long as calculated as held by this person, whether or not it be in the person’s name) who holds 10 percent or more of the total issued and outstanding shares with voting rights of the insurance or reinsurance company; or
a shareholder who actually exercises influence over major business matters of the insurance or reinsurance company through the appointment of officers (excluding the person in charge of the execution of tasks) or otherwise as prescribed by the Enforcement Decree.

A legal person who plans to become a large shareholder of an insurance or reinsurance company through the acquisition of shares must not possess any aspect that disqualifies the legal person as an officer under the ACGFC, and the legal person must have sufficient capital contribution capabilities and sound financial standing with no history of undermining sound economic order. Further, the legal person must satisfy the requirements as prescribed by the Enforcement Decree of the ACGFC and receive prior approval from the FSC (‘approval to become the large shareholder’). Requirements of obtaining approval to become the large shareholder differ based on the nature of the legal person (i.e, whether the large shareholder is a natural person or a company, and whether the large shareholder is a financial institution, fund or an institutional private equity fund (PEF)) or nationality of the legal person, etc.

For a company wishing to become a large shareholder, the company’s representative, its largest shareholder and a shareholder of the company who is clearly the shareholder that controls major management issues de facto are subjected to evaluation for the approval to become a large shareholder.

Financing of an acquisition

What are the requirements and restrictions regarding financing of the acquisition of an insurance or reinsurance company?

Under the Enforcement Decree of the ACGFC, which prescribes the requirements for a large shareholder to be a candidate for approval of the change, the large shareholder of an insurance or reinsurance company, based on its nature or nationality, must satisfy the following requirements:

If the large shareholder is a domestic financial institution:
It needs to satisfy the financial soundness standard prescribed by the FSC for the relevant financial institution.
If the institution is part of the principal debtor group or a group of companies subject to limitations on mutual contribution and the sort, the debt ratio, calculated by summing up the revised financial statements of the companies of such groups (excluding financial institutions), must be 300 percent or lower.
It must not have been subject to a sanction equivalent to, or more severe than, a fine for violating finance-related laws, the Monopoly Regulation and the Fair Trade Act, or the Punishment of Tax Offenses Act during the preceding five years, and it must not have undermined the soundness of financial order (e.g, by defaulting on obligations) during the preceding five years. It must not be the large shareholder of, or be specially related to, a financial institution that has been designated as insolvent or whose license, permit or registration was revoked under the Act on the Structural Improvement of the Financial Industry (provided, this shall exclude parties that fall under the criteria designated and publicly announced by the FSC, such as a party that has been acknowledged by a court ruling to not be the cause of the insolvency, a party that has borne the economic liability imposed due to the insolvency, et cetera). It must not have undermined the soundness of the financial transaction order as prescribed and announced by the FSC (‘not have undermined the soundness of the financial transaction’).
If the large shareholder is a fund, et cetera, it must not have undermined the soundness of the financial transaction.
If the large shareholder is a domestic corporation that is not a financial institution or a fund (excluding organizations such as institutional PEF with active participation in management):
it must have a debt-to-equity ratio that is 300 percent or lower as of the end of the most recent fiscal year;
if the corporation is an affiliate of the group of companies subject to limitations on mutual contribution and the sort, or is part of the principal debtor group, the debt ratio of the relevant affiliate of the group of companies subject to limitations on mutual contribution and the sort, or that is part of the principal debtor group, must be 300 percent or lower;
the portion of capital financed by debt (funds raised by increasing capital by issuing new shares, sales of fixed assets within one year, internal reserves or by methods other than those recognized as equivalent) must be two-thirds of the total capital or lower; and
it must not have undermined the soundness of the financial transaction.
If the large shareholder is a legal person and a local citizen:
the person must meet the qualification requirements of a director under the ACGFC;
the person must not have undermined the soundness of the financial transaction; and
the portion of capital financed by debt shall be two-thirds of the total capital or lower.
If the large shareholder is a foreign company:
it must be engaged in the financial business as designated by the FSC at the date of the application for approval (in the case where the financial institution in which the shares are being acquired is a financial holding company, it includes a holding company of a foreign corporation currently operating in the financial industry);
it must receive an investment-grade rating from an internationally recognized credit rating agency or be recognized as financially sound by the regulatory agency of its home country;
it must not have been subject to a warning or more severe administrative sanction from the regulatory agency, or subject to a fine or more severe criminal sanction in its home country in connection with engaging in its financial business during the preceding three years; and
it must not have undermined the soundness of the financial transaction.
If the large shareholder is a legal person and a foreigner (only relevant if the financial institution in which the shares are being acquired is a financial holding company):
the person must have had experience working as a full-time director of a foreign financial institution for at least five years at the date of the application for approval;
the person must meet the qualification requirements of a director under the ACGFC;
confirmation is necessary from the financial supervisory body of the country the foreigner is a national of that there are no grounds on which the foreigner would be disqualified from being a large shareholder of a financial holding company in their country of origin;
the person must not have undermined the soundness of the financial transaction; and
the portion of capital financed by debt shall be two-thirds of the total capital or lower.
If the large shareholder is an institutional PEF, et cetera, under the Financial Investment Services and Capital Markets Act.
If the institutional PEF’s general partner or limited partner (excluding where the partner not having any substantial influence on a PEF is confirmed in the articles of incorporation, investment contract and letter of confirmation, et cetera) with 30 percent of its contributed shares.
A limited partner who has substantial control over the institutional PEF.
A shareholder or a member of a segregated portfolio company (SPC) who is a general partner of the institutional PEF.
A shareholder or member with 30 percent of its contributed shares.
A shareholder or member who has substantial control over the SPC, and who falls under the aforementioned points, must meet the requirements stipulated under the Enforcement Decree of the ACGFC.

Minority interest

What are the regulatory requirements and restrictions on investors acquiring a minority interest in an insurance or reinsurance company?

There are no specific restrictions on acquiring a minority interest in an insurance or reinsurance company.

Foreign ownership

What are the regulatory requirements and restrictions concerning the investment in an insurance or reinsurance company by foreign citizens, companies or governments?

The Regulations on Foreign Investment (Ministry of Trade, Industry and Energy (MOTIE) Notification) contain a list of the business categories from which foreign investment is excluded or restricted, but does not include the insurance and reinsurance business. The Foreign Investment Promotion Act (FIPA), a law of general application on foreign investment, applies when a foreigner intends to acquire and own shares or equity interest in a domestic subsidiary or company to establish sustained economic relations with such subsidiary or company by participating in management activities, et cetera, of such subsidiary or company. Under the FIPA, a foreigner who intends to invest in a domestic company, including an insurance or reinsurance company, must file a report with MOTIE.

In this light, for a foreigner to acquire shares of a domestic insurance company that is a financial company and become its large shareholder, it must obtain the prior approval of the FSC and satisfy the following conditions:

the foreigner must have experience working as a regularly employed executive of a foreign financial company for five or more years as of the date of the application for approval;
the foreigner must meet the qualification requirements of a director under the ACGFC;
there must be confirmation from the financial supervisory body of the country the foreigner is a national of, that there are no grounds on which the foreigner would be disqualified from being a large shareholder of a financial holding company in their country of origin, namely:
it must not have been subject to a sanction equivalent to, or more severe than, a fine for violating finance-related laws, the Monopoly Regulation and the Fair Trade Act, or the Punishment of Tax Offenses Act during the preceding five years;
it must not have undermined the soundness of the financial order (e.g, by defaulting on obligations) during the preceding five years;
it must not be the large shareholder of, or be specially related to, a financial institution that has been designated as insolvent or whose license, permit or registration was revoked under the Act on the Structural Improvement of the Financial Industry (unless it is subject to specific exemptions as prescribed by the FSC, such as being found not to be responsible for such insolvency by the court or taking economic responsibility for such insolvency); and
as something amounting to the above-mentioned prerequisites of this, it must not have undermined the soundness of the financial transaction order as prescribed and announced by the FSC; and, the portion of its capital financed by debt (funds raised by increasing capital by issuing new shares, sales of fixed assets within one year, internal reserves, or by methods other than those recognized as equivalent) must be two-thirds of the total capital or lower.

Meanwhile, for a foreign company to acquire shares of a domestic insurance company that is a financial company and become its large shareholder, it must also obtain the prior approval of the FSC and satisfy the following conditions:

it must be engaged in the financial business as designated by the FSC at the date of the application for approval;
it must receive an investment-grade rating from an internationally recognized credit rating agency or be recognized as financially sound by the regulatory agency of its home country;
it must not have been subject to a warning, or more severe administrative sanction, from the regulatory agency or subject to a fine or more severe criminal sanction in its home country in connection with engaging in its financial business during the preceding three years;
it must not have been subject to a sanction equivalent to, or more severe than, a fine for violating finance-related laws, the Monopoly Regulation and the Fair Trade Act, or the Punishment of Tax Offenses Act during the preceding five years;
it must not have undermined the soundness of the financial order (e.g, by defaulting on obligations) during the preceding five years;
it must not be the large shareholder of, or be specially related to, a financial institution that has been designated as insolvent or whose license, permit or registration was revoked under the Act on the Structural Improvement of the Financial Industry (unless it is subject to specific exemptions as prescribed by the FSC, such as being found not to be responsible for such insolvency by the court or taking economic responsibility for such insolvency); and
as something amounting to the above-mentioned prerequisites of this, it must not have undermined the soundness of the financial transaction order as prescribed and announced by the FSC.

Group supervision and capital requirements

What is the supervisory framework for groups of companies containing an insurer or reinsurer in a holding company system? What are the enterprise risk assessment and reporting requirements for an insurer or reinsurer and its holding company? What holding company or group capital requirements exist in addition to individual legal entity capital requirements for insurers and reinsurers?

The Monopoly Regulation and Fair Trade Act regulates large enterprise groups designated by the Korea Fair Trade Commission. Companies belonging to such large enterprise groups are subject to the following restrictions on guaranteeing loans to other companies:

prohibited from mutual investment;
must pass a resolution of the board of directors and publicly disclose any large transactions with each other;
must publicly disclose material information on private companies within the enterprise group; and
must publicly disclose general matters regarding the enterprise group.

As such, an insurance company belonging to a large enterprise group would also be required to comply with the foregoing. Also, a company engaged in the financial or insurance business belonging to an enterprise group with mutual restrictions on capital contribution is, in principle, prohibited from exercising the voting rights attached to the shares it acquires or owns in other local Korean affiliate companies within the same enterprise group (except, as provided by clause 9, the shares of companies in the business approved by the laws or regulations). Because the basic purpose of shareholding in another company by a financial company or an insurance company is to maximize the performance of the entrusted investment assets, and this prevents the possibility of such companies becoming a de facto holding company, controlling the operation of its affiliates must be prevented.

An insurance company that has a holding company as the large shareholder may also be subject to the Financial Holding Companies Act (FHCA), which regulates the establishment, shareholding, business, inclusion of subsidiaries and operation of a financial holding company. The FHCA sets out whether or not a company that satisfies the conditions can become a financial holding company. A financial holding company is a company whose primary business is to control companies carrying on financial business or other companies closely related to the operation of a financial business through the ownership of their stocks, and must meet the following criteria:

it shall control at least one financial institution;
its total assets shall be 500 billion won or more on its statement of financial position; and
it shall obtain authorization from the FSC under the FHCA.

Among the categories of financial holding companies, any non-banking holding company (a financial holding company that does not control a bank) that controls one or more financial institutions, including an insurance company, is defined as an ‘insurance holding company’. The FHCA provides specific regulations regarding insurance holding companies, such as securing authorization of the establishment of an insurance holding company and inclusion of subsidiaries, as well as regarding the control of subsidiaries, subsidiaries of subsidiaries and other companies, to protect the policyholders and to prevent excessive expansion of the dominance of insurance holding companies.

Any company that meets the requirements for insurance holding companies must obtain, in advance, authorization from the FSC under the following standards:

the business plan of a joint-stock company that is to be an insurance holding company or subsidiary, et cetera, must be appropriate and sound;
large shareholders (including shareholders that are related parties to the largest shareholder, and if the largest shareholder is a corporation, the shareholder that, de facto, influences the major management decisions of the corporation, including parties designated by the Enforcement Decree of the FHCA and related persons) must have adequate investment capacity, financial soundness and social credibility;
the financial standing and business management of a company that is to be an insurance holding company, its subsidiary or others must be sound; and
where it becomes a complete holding company through a stock swap or a stock transfer, the swap ratio of stocks must be appropriate.

If an insurance holding company intends to newly include a subsidiary, et cetera, it must obtain approval from the FSC under the following standards:

the business plan of a company that is to be included as a subsidiary must be appropriate and sound;
the financial standing and business management of an insurance holding company or its subsidiary must be sound; and
where it becomes included as a subsidiary through a stock swap, the swap ratio of stocks must be appropriate.

Also, if a financial holding company intends to incorporate an insurance company as part of its subsidiary, et cetera, by acquiring its shares, it must satisfy the requirements prescribed by ACGFC and obtain the prior approval of the FSC.

Meanwhile, the Act on Supervision of Financial Complex Business Groups, which is based on the Exemplary Guidelines for Integrated Supervision of Financial Groups that were previously run on a trial basis, was enacted in December 2020 and came into effect at the end of June 2021. According to the Act, a group with assets of more than 5 trillion won and that is operating two or more financial businesses is designated as a financially complex business group until 31 July of every year. A financially complex business group must select within itself a specific financial company as the representative to perform various tasks, such as internal control and risk management of the financially complex business group. This Act determines various indicators and details for sound management of the financially complex business group and prescribes the blueprint for a supervisory system of the authorities and the reporting and disclosure system. It also determines various measures, such as improvements to risk management, through a regular evaluation of the risk management status of a financially complex business group. The Financial Services Commission selected six financial complex business groups in June 2021, seven in June 2022, and the same seven business groups in July 2023.

Reinsurance agreements

What are the regulatory requirements with respect to reinsurance agreements between insurance and reinsurance companies domiciled in your jurisdiction?

If an insurance company obtains a license for a certain insurance business category, it is deemed to have received a reinsurance license for the same insurance business category. An insurance company is prohibited from entering into a reinsurance agreement with its large shareholder or subsidiary if it is doing so on terms that are clearly disadvantageous to it in comparison with ordinary trading terms.

Ceded reinsurance and retention of risk

What requirements and restrictions govern the amount of ceded reinsurance and retention of risk by insurers?

In principle, an insurance company has freedom in terms of engaging in ceded reinsurance. However, such freedom is guaranteed only on the condition that the insurance company holds 10 percent or more of each of the insurance risks that it has acquired through entering into a general damage insurance (excluding automobile insurance) (the amount after deducting the reinsurance fee from the ceded insurance fee shall be 10 percent or more of the ceded insurance fee), to cover reasonable business costs incurred, such as the expenses arising due to the acquisition and possession of the insurance risks, etc. Provided, in the following instances, the insurance company shall be exempt from meeting this requirement outlined if:

the risk management committee within the insurance company determines that it is realistically difficult to own 10 percent or more of the insurance risks, in consideration of the distinctiveness of the insurance contract at issue, risk analysis, the financial condition of the company, et cetera; and
if the insurance company that has acquired a reinsurance contract registers for another reinsurance for the reinsurance contract at issue.

Also, the insurer must establish and operate a reinsurance risk management strategy to manage financial health related to the reinsurance contract. In establishing the risk management strategy, the insurance company’s capital management plan, basic risk management policy, business scale, risk characteristics, risk tolerance, et cetera, should be considered, and the internal control system necessary to implement the risk management strategy should be established and operated. Also, the insurance company must prepare and manage the documents (including magnetic tape, diskette, and other information preservation devices) documenting all data and information such as contract documents and agreements related to the reinsurance contract.

Meanwhile, if the insurance company registers for a reinsurance that meets all of the conditions provided below, the reinsured insurance company shall accumulate liability reserves for the portions reinsured, and an insurance company shall record the liability reserve accumulated by the insurance company covered by the reinsurance as a separate asset:

insurance risks have been imputed; and
the relevant reinsurance contract may cause loss to the company covered by the reinsurance.

Also, the insurance company must reduce all of its reinsured assets if the reinsured company falls under any of the following:

it fails to satisfy the criteria relating to financial soundness prescribed by domestic supervisory agencies; or
its credit appraisal rating conducted by an internationally recognized credit-rating agency (including the credit appraisal rating conducted by a domestic credit appraisal rating agency of similar status) within the past three years is not investment grade; however, this excludes any foreign insurance company established through a foreign government’s contribution of half or more of the total capital, if the relevant foreign government was rated as investment grade in a sovereign credit rating conducted by an internationally recognized credit-rating agency within the past three years.

However, the amount of the reduction may be reduced by:

the liability reserves (including both payment reserves and unearned premium reserves) of the relevant reinsurance contract; and
the amount secured by banks and foreign banks (limited to foreign banks that are suitable for international business activities in light of the total amount of assets and business size, have high international credibility, and are sufficiently supervised by the relevant foreign financial supervisory authority regarding the soundness of the foreign banks, et cetera) through deposit or by opening a letter of credit.

In preparation for the implementation of IFRS 17, a coinsurance system, which, unlike traditional reinsurance, permits transfer of insurance premium other than insurance premium for insurance risks (such as the investment portion of the premium) to a reinsurer, has been adopted in Korea.

Collateral

What are the collateral requirements for reinsurers in a reinsurance transaction?

There are no collateral requirements prescribed by law for reinsurers in a reinsurance transaction.

Credit for reinsurance

What are the regulatory requirements for cedents to obtain credit for reinsurance on their financial statements?

If the insurance company registers to a reinsurance that meets the conditions provided below, the reinsured insurance company shall accumulate liability reserves for the portions reinsured, and an insurance company shall record the liability reserve accumulated by the insurance company covered by the reinsurance as a separate asset:

insurance risks have been imputed; and
the relevant reinsurance contract may cause loss to the company covered by the reinsurance.

Concerning the financial statement of a reinsurance company, a reinsurance contract that does not satisfy the above-mentioned conditions shall be accounted for as a bank balance or a deposit.

Meanwhile, if the reinsurer either fails to satisfy standards for financial soundness as determined by domestic supervisory agencies or receives a non-investment grade rating from an internationally recognized credit rating agency within the preceding three years, the total amount of the reinsured assets must be reduced. However, the amount of the reduction may be reduced by:

the liability reserves (including both payment reserves and unearned premium reserves) of the relevant reinsurance contract; and
the amount secured by banks and foreign banks (limited to foreign banks that are suitable for international business activities in light of the total amount of assets and business size, have high international credibility, and are sufficiently supervised by the relevant foreign financial supervisory authority regarding the soundness of the foreign banks, et cetera) through deposit or by opening a letter of credit.

Insolvent and financially troubled companies

What laws govern insolvent or financially troubled insurance and reinsurance companies?

Insolvent insurance and reinsurance companies are subject to regulation by the IBA and the Act on the Structural Improvement of the Financial Industry. The FSC may impose certain corrective measures under the relevant laws and regulations.

According to the IBA, the FSC may take necessary measures, such as an order to increase capital or funds, or limit the ownership of risky assets such as stocks, if it is deemed that an insurance company may harm management soundness by failing to comply with the standards of financial soundness. In such cases, it is necessary to consider whether the measures are appropriate for the protection of the policyholder, are necessary to prevent insolvency of the insurance company and induce sound management. Also, if it is deemed that there is a risk of serious harm to the interests of the policyholder, such as the bankruptcy of the insurance company or the inability to pay the insurance proceeds, restrictions on the execution of the insurance contract, suspension of all or part of the insurance proceeds, or other necessary measures may be ordered.

According to the Act on the Structural Improvement of the Financial Industry, if the FSC determines that the financial condition (e.g, the capitalization ratio) of an insurance or reinsurance company falls below certain standards, or is deemed to fail to meet the standards due to an unpredicted financial accident involving a large sum of money or occurrence of bad debt, it must advise, request or order the relevant insurance or reinsurance company or its executives to engage in, or submit a plan to engage in, the following acts to facilitate the soundness of management and to prevent the insolvency of the company (timely corrective measures):

a caution or warning, reprimand or order for a reduction of salary for the insurance or reinsurance company and its executives and employees;
a capital increase or decrease, disposal of assets or the reduction of the organization or a store branch;
a prohibition on the acquisition of assets with high risks of default or price volatility, or restriction on the receipt of amounts subject to abnormally high interest rates;
a suspension of an officer’s duties and the appointment of a substitute manager to perform the officer’s duties;
a stock cancellation or merger;
a suspension of all or part of the business;
a merger or a buyout of an insurance or reinsurance company by a third party;
an assignment of contracts relating to financial transactions such as transfer of the business, savings or loans; or
any other measure amounting to any of the acts previously mentioned that is deemed necessary to facilitate the financial soundness of the insurance or reinsurance company.

The IBA provides that the insolvency of an incompetent company is grounds for the dissolution of an insurance company, and an insurance company’s insolvency proceedings are regulated by the Act on the Structural Improvement of the Financial Industry. Procedures other than those prescribed by the above statutes are contained in the Act on Debtor Rehabilitation and Bankruptcy, a law that applies to ordinary companies.

Claim priority in insolvency

What is the priority of claims (insurance and otherwise) against an insurance or reinsurance company in an insolvency proceeding?

Insolvency proceedings place reimbursement priority on the claims (i.e, estate claims) recognized by the Debtor Rehabilitation and Bankruptcy Act that consist of administrative expenses in connection with insolvency proceedings. These priority claims include court expenses for the communal benefit of all insolvency creditors, expenses for the administration, conversion and distribution of an insolvent’s estate, and claims arising out of the trustee’s actions concerning the insolvent’s estate. Other claims are insolvency claims, which are repaid under the relevant insolvency proceedings. Claims for insurance benefits by a policyholder are, in principle, insolvency claims that do not have priority.

However, policyholders and beneficiaries have priority in acquiring the amount accumulated for the insured among the assets of the insurance company unless otherwise specifically provided by law. That is, if an insurance company becomes insolvent, unless there are legal provisions to the contrary, policyholders and beneficiaries receive their portion of the residual assets of the insurance company before other creditors. These ‘specific legal provisions’ include, inter alia, wages and retirement allowances of employees under the relevant labor laws and secured claims. The relevant policyholder or beneficiary has priority in recovering the amount accumulated for the insured from the assets deposited due to an FSC order made under the IBA, even if there are legal provisions to the contrary. However, if an insurance company actually becomes bankrupt, the supervisory authorities protect policyholders by transferring the insurance contracts of the bankrupt insurance company to other insurance companies under the IBA. Even if another insurance company does not assume the insurance contracts, a system exists whereby the Korean Deposit Insurance Company provides payment of up to 50 million won of unpaid insurance proceeds to policyholders under the Depositor Protection Act.

Intermediaries

What are the licensing requirements for intermediaries representing insurance and reinsurance companies?

According to the IBA, persons who may solicit insurance include insurance solicitors, insurance brokers, insurance agencies, or executives or employees of an insurance company (excluding the representative director, outside directors, auditors and members of the audit committee). Among these, an insurance solicitor is a person (including any association and any foundation, neither of which is a corporation) who belongs to an insurance company, insurance agency or insurance broker, and who engages in brokering the conclusion of insurance contracts.

To become an insurance solicitor, he or she must register with the FSC. A person falling under the following categories may not become an insurance solicitor (see article 84 of the IBA, amended and effective as of 25 March 2021):

a person under adult guardianship or limited guardianship;
a person who was declared bankrupt and who has yet to be reinstated;
a person who has been sentenced to a fine or heavier punishment under the IBA or the Financial Consumer Protection Act (the FCPA), and in whose case two years have not yet passed since the expiration of the term of the sentence (including cases where the execution of such sentence is deemed terminated), or since the decision to exempt such sentence has been made;
a person who was sentenced to probation for imprisonment without labor or a heavier punishment, and is still within the probation period under the IBA or the FCPA;
a person who has suffered the revocation of his or her registration as an insurance solicitor, insurance agency or certified insurance broker under this Act (excluding where such registration was revoked due to points (1) or (2)) and two years have not yet passed since the date on which the registration was revoked;
a person who has been subject to disposition for the revocation of his or her registration as an insurance solicitor, insurance agency or insurance broker under the IBA at least twice, and three years have not yet passed since the date on which the final disposition of the revocation of registration was taken;
a person (only applicable to a person who has been subject to a penalty more serious than job suspension or an employee who has been subject to a penalty more serious than suspension, or a person who has resigned before being subject to the above penalties, who takes direct or equivalent responsibility for the occurrence of the grounds for disposition) who was an executive or employee of an insurance agency or certified insurance broker that is subject to disposition for administrative fines or penalty surcharges but fails to pay them; or that is subject to disposition for business suspension or the revocation of registration under the IBA or the FCPA, and in whose case two years have not yet passed from the date on which the dispositions of administrative fines, penalty surcharges, business suspension and the revocation of registration is taken;
a minor who does not have the same capability as that of an adult in engaging in business and whose legal representative falls under points (1) to (7);
a corporation, or an association or foundation other than a corporation, that has an executive or manager falling under any of points (1) to (9); or
a person who has appropriated premiums, loans or insurance proceeds that he or she has received in connection with the solicitation for any other purposes, and three years have not yet passed since the date on which he or she has appropriated these premiums, loans or insurance proceeds.

A person or corporation that intends to become an insurance agency shall separately register with the FSC. A person or corporation falling under the following categories may not become an insurance agency:

a person falling in any of the above-mentioned (1) to (10) categories that disqualifies the person from becoming an insurance solicitor;
a person who has been registered as an insurance solicitor or an insurance broker;
a person who is an executive or an employee of another insurance company, et cetera;
a person deemed to fall under point (1) above pursuant to foreign acts and subordinate statutes; or
other than the above, a person designated by the Enforcement Decree of the IBA as a person who may engage in unjust solicitation such as acts that substantially limit competition.

A person or corporation that intends to become an insurance broker shall separately register with the FSC. A person or corporation falling under the following categories may not become an insurance broker:

a person falling in any of the above-mentioned (1) to (10) categories that disqualifies the person from becoming an insurance solicitor;
a person who has been registered as an insurance solicitor or an insurance agency;
a person who is an executive or an employee of another insurance company, et cetera;
a person in any of the categories that disqualifies the person from becoming an insurance solicitor pursuant to overseas regulations, and other than the foregoing, a person designated by the Enforcement Decree of the IBA as a person that may engage in unjust solicitation such as acts that substantially limit competition; or
a corporation whose liabilities exceed its assets.

Additionally, the requirements for registration as an insurance solicitor, insurance agency or insurance broker are prescribed in the Enforcement Decree of the IBA. Registration normally requires an undertaking of education (i.e, training sessions mandated by the FSC) and work experience in the type of insurance business that the registration is for. Specifically for insurance solicitors, for individuals who have been found guilty in multiple cases of reported mis-selling, a separate collective education program has been newly established as an additional requirement. If a company intends to engage in insurance brokerage, one-third of its workers must satisfy the requirements in the above-mentioned (1) to (10) categories.

INSURANCE CLAIMS AND COVERAGE

Third-party actions

Can a third party bring a direct action against an insurer for coverage?

In principle, when an accident covered by insurance occurs, the insurer must pay insurance proceeds to the insured or the beneficiary according to the insurance contract.

However, in the case of liability insurance, the injured third party may directly request an insurer to compensate for losses caused by an accident attributable to the insured, within the limit of the insured amount, provided that an insurer may assert against the third party with a Defense that the insured has in connection with the accident. Also, if the insurer receives such a request, it must notify the insured thereof without delay. In this case, the insured is obliged to cooperate in presenting necessary documents and evidence, providing testimony or calling a witness if there is such a request from the insurer.

Recently, the Supreme Court of Korea ruled that the number of losses incurred could be calculated under the general standards without being constrained by the standards for payment as outlined under the insurance terms and conditions. This is so long as the amount is within the scope of responsibility imposed on the insurer under the insurance contract, since the legal characteristic of a third party’s right to bring an action directly against an insurer is the right to claim compensation for damages (Supreme Court Decision 2018Da300708 rendered on 11 April 2019).

Late notice of claim

Can an insurer deny coverage based on late notice of claim without demonstrating prejudice?

The insurance policyholder, the insured and the insurance beneficiary are required to notify the insurer without delay when they obtain knowledge of the occurrence of an accident covered by the insurance, and if any loss occurs or increases because of a delay in the provision of such notice, the insurer is not liable for the increased amount of loss from such delay. In principle, it is not possible to refuse payment of insurance proceeds on the ground that the notice of the occurrence of an insurance accident was delayed, but if the right to claim payment of insurance proceeds is not exercised within three years of the date the insurance accident occurred, this right becomes extinguished because of the expiration of the statute of limitations on such claims. Therefore, if the notice of the occurrence of an insurance accident and the claim for payment of insurance proceeds are not made within three years of the date when the insurance accident occurred, the insurer may refuse to pay insurance proceeds on the ground that the statute of limitations to claim payment of insurance proceeds has expired.

Wrongful denial of claim

Is an insurer subject to extra-contractual exposure for wrongful denial of a claim?

In principle, even where there is a wrongful denial of a claim, the liability does not exceed the scope as prescribed by the relevant insurance contract separate and distinct from any interest for arrears as a result of a delay in the payment of insurance proceeds. However, an insurer may be subject to administrative penalties by the Financial Services Commission, such as a caution, warning, corrective order or administrative surcharge, for breaching the obligation to observe the matters in its basic documents (including terms and conditions).

Defense of claim

What triggers a liability insurer’s duty to defend a claim?

The law does not specify an obligation for the liability insurer to defend against claims, so in principle, the liability insurer does not bear the duty to defend against a claim. However, if an obligation to defend against claims is specified in the policy terms for the liability insurer, such an obligation may arise. But generally, liability insurance policies do not include an obligation to defend.

However, the litigation costs and other costs spent by the insured to defend a third-party claim are usually expressly covered by a policy, and the insured may request the insurer to pay these costs in advance. Further, if a third party claims payment of insurance proceeds directly from the insurer, the insurer is required to notify the insured without delay. Also, the insurer may raise the same defenses against the third party that the insured has against the third party.

Indemnity policies

For indemnity policies, what triggers the insurer’s payment obligations?

Subject to the express terms of the insurance contract, the insurer’s payment obligations are triggered as soon as the insurance accident occurs and the insured notifies the insurer thereof. The insurer must pay the insured proceeds to the insured or beneficiary within the agreed period if there is one, or within 10 days after the determination of the insurance proceeds payable without delay, upon receipt of notification from the policyholder, the insured or the beneficiary. However, if the insurance accident occurred owing to bad faith or the gross negligence of a policyholder, the insured or the beneficiary, the insurer is not liable to pay the insurance proceeds. That being said, in the case of death as an insurance accident, an insurer must pay the insurance proceeds to an insurance holder, insured or the beneficiary, even where gross negligence is established with respect to the insurance accident. Additionally, if the insurance accident is caused by war or other insurgent circumstances, the insurer is not liable to pay the insurance proceeds, unless otherwise agreed by the parties.

Incontestability

Is there a period beyond which a life insurer cannot contest coverage based on misrepresentation in the application?

If the policyholder or the insured intentionally or through gross negligence fails to disclose or inadequately discloses material information at the time of entering into an insurance contract, the insurer may terminate the insurance contract within one month of becoming aware of such fact or three years after the date when the insurance contract was executed, whichever is earliest. However, the insurer may not terminate the insurance contract if the insurer knew or failed to know about, through gross negligence, the material information that the insured failed to disclose at the time of entering into the insurance contract. After such a period, the insurer may not terminate the insurance contract based on misrepresentation in the application. Any information requested by the insurer in writing is presumed to be material information. Even if an insurance accident has occurred, if the insurer has terminated the insurance contract for breach of the disclosure requirement above, the insurer is not liable for payment of insurance proceeds, and the insurer may claim the return of any insurance proceeds that have already been paid. Yet, the insurer may be required to pay the insurance proceeds if it is proven that the insured’s violation of the duty of disclosure did not contribute to the occurrence of the insurance accident.

Punitive damages

Are punitive damages insurable?

Punitive damages are generally not recognized, and at this time, punitive damages have been adopted in a limited way. Thus far, there is no statutory law, case precedent or authoritative interpretation on the issue of whether punitive damages are insurable; however, there is no legal basis for expressly restricting insurance coverage for punitive damages. One must also note the needs of corporations to be protected from risks in relation to major systems that introduced punitive damages, such as the Serious Accidents Punishment Act; the responsive trends of the property insurance industry; and the position of the financial supervisory authority.

Excess insurer obligations

What is the obligation of an excess insurer to ‘drop down and defend’, and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?

The law does not expressly deal with the definition and legal status of the primary insurer-excess insurer, or with ‘drop down and defend’ excess insurance arrangements. Therefore, unless such obligation of the excess insurer is not prescribed by the insurance contract, the insurer bears no such obligation.

Self-insurance default

What is an insurer’s obligation if the policy provides that the insured has a self-insured retention or deductible and is insolvent and unable to pay it?

If the insurer and the insured agreed to have the insurer cover only the amount in excess of the self-insured retention or deductible, even if the insured becomes insolvent and unable to pay the self-insured retention or deductible, the insurer’s payment obligation remains limited only to the amount in excess of the self-insured retention or deductible as originally agreed.

Claim priority

What is the order of priority for payment when there are multiple claims under the same policy?

There is no order of priority for payment in such cases prescribed by law as being governed by the provisions of the policy. In practice, if there are multiple claims under the same policy, the insurer pays the claim based on chronological order as such claims are fully proven according to the policy.

Allocation of payment

How are payments allocated among multiple policies triggered by the same claim?

It depends on the nature of the insurance policy. If multiple insurance contracts have been executed simultaneously or in sequence for the same insurance contract purposes and same covered insurance accidents, the insurers are jointly liable each up to the amount of their insurance coverage if the total amount insured exceeds the insurable value. The ratio of liability among insurers is decided by the ratio of each insurer’s insurance coverage amount. An insurance proceeds claimant may claim each of the insurers’ full amount of insurance proceeds under the policy.

Disgorgement or restitution

Are disgorgement or restitution claims insurable losses?

The Commercial Act explicitly provides for liability insurance, which is an insurance to ‘indemnify for losses incurred by the insured against a third party by perils insured against during the period of coverage’. Accordingly, any indirect loss of the insured because of its liability for compensation of damages to a third party is also a risk that may be covered by an insurance company. Meanwhile, while it is not entirely clear whether it is possible to insure against liability for disgorgement of unjust enrichment owing to an accident during the term of insurance, as the Commercial Code does not explicitly provide for such liability, there is a chance for such insurance to be possible, depending on the specific risks that the relevant terms of the insurance covers, in a liability insurance or a guarantee insurance that insures compliance to the terms of the contract.

Definition of occurrence

How do courts determine whether a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?

There is no applicable law that explicitly corresponds to this concept. Even if multiple losses occur as a result of a single event, the insurer must pay all claims arising out of all losses suffered by the insured that are causally related to the event (as determined in the insurance policy) within the scope of the insured amount.

Rescission based on misstatements

Under what circumstances can misstatements in the application be the basis for rescission?

The Commercial Act provides that if the policyholder, or the insured, fails to disclose or insufficiently discloses material facts owing to bad faith or gross negligence at the time of the insurance contract, the insurer may terminate the contract within one month after it becomes aware of the non-disclosure or insufficient disclosure, and within three years after the contract was entered into. However, if the insurer was aware of this fact or was unaware owing to its gross negligence, the insurance contract may not be terminated. Also, the insurer may void the insurance contract under the Civil Code if the insurer was mistaken as to a matter of fact or was defrauded owing to misrepresentation of the policyholder or the insured in the insurance application.

REINSURANCE DISPUTES AND ARBITRATION

Reinsurance disputes

Are formal reinsurance disputes common, or do insurers and reinsurers tend to prefer business solutions for their disputes without formal proceedings?

In Korea, the reinsurance industry tends to be small compared to the size of the entire insurance industry, and there are restrictions imposed concerning the parties involved in a reinsurance transaction. As a result, when a dispute occurs, it could cause difficulties from a business standpoint. Therefore, when reinsurance disputes occur, the parties in a continuous and friendly business relationship have traditionally resolved their disputes through negotiation and without resorting to formal proceedings. Owing to this peculiarity of the reinsurance industry, case precedents and examples of disputes that have become public are relatively few.

However, with the recent expansion of the Korean reinsurance market and the increase in the number of parties involved in a reinsurance transaction, the need to maintain a transactional relationship with a specific insurer or reinsurer has decreased. Along with the increase in reinsurance costs from large reinsurance accidents, an increasing number of reinsurers are demanding from their cedents to express their opinions on handling insurance accidents and to continuously report on the progress. Considering the growing difference in handling insurance accidents, disputes between cedents and reinsurance in the future are expected to be resolved more often by litigation or arbitration rather than through negotiation.

Common dispute issues

What are the most common issues that arise in reinsurance disputes?

Since there are relatively few express statutory provisions on reinsurance, for specific cases it is necessary to review the terms and conditions agreed between the parties and customary practice, and as a result, the most common issues that arise involve interpretation of the language contained in the reinsurance contract. Also, there could be a gap between the time when the underlying insurance contract was executed and the time when the reinsurance contract was executed, and so issues involving the scope of coverage of insurance accidents that arise in between such times are also common. Other common issues involve changes to the insurance premium amount and rate under the relevant contract or for the relevant industry after the occurrence of a large insurance accident and the associated recovery of insurance proceeds concerning such. In other cases, where there is a large-scale guarantee loss and a corresponding insurance payment, a dispute may arise over related reinsurance contracts or changes in insurance rates in related industries.

A recent issue concerned a cedent and reinsurer’s obligation to follow where the insured in the insurance contract claimed insurance payment from the cedent. Despite that the reinsurer demanded the cedent to investigate the relevant insurance accident, the cedent paid out for the insurance coverage and claimed a reinsurance payment. In another instance, where the reinsurer expressed that it is unfair to pay out for the insurance coverage to the insured, the cedent, expecting to have difficulty in claiming reinsurance in the future, did not pay out the insurance coverage but instead commenced a lawsuit with the insured.

Arbitration awards

Do reinsurance arbitration awards typically include the reasoning for the decision?

Under the Arbitration Act, arbitration decisions are required to include the reasoning for the decision. However, if the parties agree not to include the reasoning for the decision, or if the decision is based on the parties’ settlement, it is permissible not to state the reasoning for the decision.

Power of arbitrators

What powers do reinsurance arbitrators have over non-parties to the arbitration agreement?

Arbitrators have no authority over persons who are not parties to the arbitration agreement. However, arbitration panels may request a court to conduct an examination to gather evidence or request cooperation regarding conducting an examination.

Appeal of arbitration awards

Can parties to reinsurance arbitrations seek to vacate, modify or confirm arbitration awards through the judicial system? What level of deference does the judiciary give to arbitral awards?

Since arbitration awards have the same legal effect between the parties as a final, non-appealable judgment of a court, in principle, arbitration awards cannot be challenged. However, an arbitration party can file a suit with a court to have an arbitration award vacated. A court may vacate an arbitration award in either of the following cases:

the party seeking to have an arbitration award vacated proves the existence of any of the following circumstances:
a party to the arbitration agreement was not competent to be so at the time of entering into the arbitration agreement;
the arbitration agreement is invalid under the governing law designated by the parties, or under Korean law if there is no designated governing law;
the party seeking to have an arbitration award vacated did not receive proper notice of the selection of arbitrators or regarding the arbitration proceedings, or otherwise was unable to defend the case on its merits;
the arbitration award addresses a dispute that is not covered by the arbitration agreement or a matter outside the scope of the arbitration agreement; or
the composition of the arbitration panel or the arbitration procedures did not comport with the agreement of the parties that does not violate the imperative provisions of the Arbitration Act, or, if there was no agreement, it did not comport with the Arbitration Act; or
the court, by its own authority, determines that the dispute covered by an arbitration award is not permitted to be resolved through arbitration under Korean law, or that the recognition or enforcement of the arbitration award is contrary to public policy or the social order of Korea.

REINSURANCE PRINCIPLES AND PRACTICES

Obligation to follow cedent

Does a reinsurer have an obligation to follow its cedent’s underwriting fortunes and claims payments or settlements in the absence of an express contractual provision? Where such an obligation exists, what is the scope of the obligation, and what defenses are available to a reinsurer?

If there is no express contractual provision, the reinsurer does not bear the obligation to follow its cedent’s underwriting fortunes and claims payments or settlements. However, reinsurance contracts typically provide that the reinsurer bears the same coverage obligation as the coverage obligation assumed by the cedent under the ceded insurance contract. In such cases, the reinsurer is required to pay reinsurance proceeds to the cedent for the insurance proceeds paid by the cedent under the cedent insurance contract, according to the same method of payment, unless there are grounds expressly relieving the reinsurer from liability under the reinsurance contract.

Good faith

Is a duty of utmost good faith implied in reinsurance agreements? If so, please describe that duty in comparison to the duty of good faith applicable to other commercial agreements.

Utmost good faith is not expressly regulated in the Commercial Act, the Insurance Business Act or related laws and regulations. Nonetheless, the duty of utmost good faith applies generally to all contracts, including insurance and reinsurance contracts. Reinsurance contracts typically contain a provision requiring the parties to act in good faith, as a general condition. The duty of good faith in reinsurance contracts requires the cedent to notify the reinsurer of material facts relating to the reinsurance contract in good faith, and upon breach of such duty, the reinsurance contract may be invalidated.

Facultative reinsurance and treaty reinsurance

Is there a different set of laws for facultative reinsurance and treaty reinsurance?

There is no different set of laws for facultative reinsurance and treaty reinsurance. The Financial Supervisory Service and other supervisory authorities view facultative reinsurance and treaty reinsurance as different in terms of transaction form or method of ceding insurance. Therefore, cedents and reinsurers may decide on the method of ceding insurance according to individual negotiations, without any restrictions imposed by any particular law or regulation.

Third-party action

Can a policyholder or non-signatory to a reinsurance agreement bring a direct action against a reinsurer for coverage?

The provisions on liability insurance under the Commercial Act are to be applied mutatis mutandis to reinsurance contracts to the extent not contrary to their nature. Meanwhile, it is difficult to conclude that the above provisions apply mutatis mutandis to the right of a third party to claim insurance proceeds directly to the reinsurer, since it is unreasonable to view the ceding insurer under the reinsurance contract in the same way as the injured party under liability insurance, which assumes a function for the protection of the injured party and because reinsurance is insurance between companies used to reasonably spread risk between insurers.

However, if there is a direct claims clause (in other words, cut-through clause) in the reinsurance contract, the insurance holder may directly claim insurance money against the reinsurer.

Insolvent insurer

What is the obligation of a reinsurer to pay a policyholder’s claim where the insurer is insolvent and cannot pay?

Under the Commercial Code, in principle, a reinsurance contract is a wholly separate contract from the ceded insurance contract, and the reinsurance contract does not affect the validity of the ceded insurance contract. Therefore, even if the ceding insurer becomes bankrupt or insolvent, a policyholder may not raise a claim under the ceded insurance contract against the reinsurer.

In other words, if the ceding insurer becomes bankrupt, the reinsurance proceeds become a part of the ceding insurer’s bankruptcy estate, and the beneficiary under the ceded insurance contract is only an unsecured creditor in the ceding insurer’s bankruptcy proceedings. However, if the reinsurance contract contains a separate direct billing special provision (i.e, cut-through clause), the right of an insured of an underlying insurance agreement to claim insurance proceeds directly against the reinsurer is recognized as an exception. Although the insertion of such a clause is not legally mandatory, regulatory authorities are tending to recommend the insertion of such clause in reinsurance contracts for the protection of policyholders.

Notice and information

What type of notice and information must a cedent typically provide its reinsurer with respect to an underlying claim? If the cedent fails to provide timely or sufficient notice, what remedies are available to a reinsurer and how does the language of a reinsurance contract affect the availability of such remedies?

The insurance policyholder, the insured and the insurance beneficiary are required to notify the insurer without delay when they obtain knowledge of the occurrence of an insurance accident. Further, if losses increase owing to a delay in the above provision of such notice, the insurer is not liable for the increased amount of loss from such delay. If the policyholder or the insured, intentionally or through gross negligence, fails to disclose or inadequately discloses material information at the time of entering into an insurance contract, the insurer may terminate the insurance contract within one month of becoming aware of such fact or three years after the date the insurance contract was executed, whichever is earlier. Such general insurance law provisions also apply to reinsurance contracts, and there are no other laws that prescribe any notice requirement applicable particularly to reinsurance contracts. Also, as a matter of practice, reinsurance contracts often contain a provision whereby the reinsurer is not obliged to pay insurance proceeds concerning losses attributable to matters not notified by the ceding insurer. The requirement to provide notice and information in other cases may vary depending on the reinsurance contract terms.

Allocation of underlying claim payments or settlements

Where an underlying loss or claim provides for payment under multiple underlying reinsured policies, how does the reinsured allocate its claims or settlement payments among those policies? Do the reinsured’s allocations to the underlying policies have to be mirrored in its allocations to the applicable reinsurance agreements?

As the Insurance Business Act does not provide a different set of rules for reinsurance, general principles apply to reinsurance, absent special terms agreed between reinsurers and ceding insurers. Liability between reinsurers is allocated in the same way: if multiple insurance contracts have been executed for the same insurance contract purposes and same covered losses, and if the aggregate total amount of insurance exceeds the insurable value, the insurers are jointly liable each up to the amount of its insurance coverage amount.

Review

What type of review does the governing law afford reinsurers with respect to a cedent’s claims handling, and settlement and allocation decisions?

No law grants such right to reinsurers; these issues are usually governed by the policy.

Reimbursement of commutation payments

What type of obligation does a reinsurer have to reimburse a cedent for commutation payments made to the cedent’s policyholders? Must a reinsurer indemnify its cedent for ‘incurred but not reported’ claims?

Such obligation of the reinsurer is not prescribed by law. Since reinsurance contracts often contain a provision whereby the reinsurer is not obliged to pay insurance proceeds concerning losses attributable to matters not notified by the ceding insurer, the effect of a breach of duty to report claims would depend on the reinsurance contract terms.

Extracontractual obligations (ECOs)

What is the obligation of a reinsurer to reimburse a cedent for ECOs?

Exercise of rights and the performance of obligations must be under the principles of good faith, and the rights shall not be abused. These general principles of the Civil Code apply to insurance and reinsurance contracts. However, as these principles are contained in general provisions, there are no specific standards for conduct complying with principles of good faith in specific circumstances; as such, determination of whether these principles have been violated must be made on a case-by-case basis with consideration given to legal stability and specific rationality. The Act on Regulation of Standardized Contracts provides more distinction regarding the principle of good faith, and voids provisions of standardized contracts that are unduly unfair to the consumer and thereby undermines the principles of good faith.

UPDATES & TRENDS IN INSURANCE AND REINSURANCE IN SOUTH KOREA

Key developments

Are there any emerging trends or hot topics in insurance and reinsurance regulation in your jurisdiction?

Effective July 2024, the December 2023 amendments to the Act on Corporate Governance of Financial Companies will be enforced, requiring executives of financial companies to manage internal control over their own affairs. The amendment clarifies the scope and content of internal control tasks for which each executive is responsible in advance through the introduction of a ‘responsibilities map’ and imposes the duty of managing internal controls on executives, including the CEO, to check the adequacy of internal control standards to ensure that internal controls are adequate for the tasks under their purview. In particular, the CEO is explicitly assigned the duty of general supervision to establish an organization-wide internal control system and supervise the control activities of each executive officer as the head of internal control. The deadline to submit this responsibilities map to the Financial Services Commission (FSC) for insurance companies with total assets of 5 trillion won or more is July 2025, one year after the Act’s enforcement, and for insurance companies with total assets of less than 5 trillion won, the timing is July 2026, two years after the Act’s enforcement.

Furthermore, with the introduction of IFRS17 in 2023, concerns have been raised about potential confusion due to insurance companies using arbitrary actuarial assumptions. In response, the Financial Supervisory Service has established specific guidelines on key actuarial assumptions that significantly impact financial statements. These guidelines include:

calculation standards for actuarial assumptions for medical insurance;
calculation standards for assumption of cancellation rates for no- and low-sum insurance;
calculation standards for assuming cancellation rates for high-interest products;
CMS amortization standards for recognizing insurance gains and losses; and
RA amortization standards for recognizing insurance gains and losses.

Additionally, with the implementation of the New Korean-Insurance Capital Standard (K-ICS) in 2023, insurance companies are required to prepare financial statements based on prudential supervision standards for the purpose of calculating solvency ratios, accounting firms are required to perform audits of insurance company solvency ratios for the first time, and the K-ICS External Audit Guidance was established for accounting firms to refer to when auditing insurance companies’ K-ICS. In addition, the Enforcement Decree of the Commercial Code was amended to allow insurance companies to exceptionally offset unrealized gains and losses when calculating distributable gains to ensure stable dividends to general shareholders.

Meanwhile, the FSC announced the Pet Insurance System Improvement Plan to promote pet insurance. First of all, the FSC announced that it would relax the one-company-one-license regulation that allows only one life insurance company and one damage insurance company per financial group to enter the market, and through this announcement, it has allowed ‘Specialized Pet Insurance’ that specializes in pet-related services to enter the market. In addition, the FSC will actively promote the development of customized pet insurance products by diversifying the coverage and premiums of pet insurance products in consideration of pet and disease characteristics and establish an infrastructure to promote insurance, such as standardizing medical treatment items in consultation with relevant ministries such as the Ministry of Agriculture, Food and Rural Affairs, and mandating the issuance of medical records and proof of medical expenses.

A number of changes have been made to the systems related to the sale of insurance products. First, the Act on the Protection of Financial Consumers was revised on September 25, 2023 to state that (1) when a financial products salesperson makes door-to-door or telephone solicitations of financial products, the salesperson must inform the financial consumer in advance that the visit or call is for the purpose of solicitation, the name of the salesperson, and the type and content of the financial products to be sold; (2) financial consumers may request not to be contacted for the purposes of soliciting financial products, and financial companies must comply with such requests; and (3) door-to-door sales regulations will be strengthened so that door-to-door sales cannot be made at night (9 p.m. to 8 a.m. the next day) unless a financial consumer requests otherwise. In addition, the FSC has amended the Enforcement Decree of the Insurance Business Act and the Insurance Supervision Regulations to support digital and virtual insurance solicitation by allowing the launch of insurance product comparison and recommendation services through online platforms, which were previously not permitted, and allowing hybrid methods (listening on a smartphone and reading instructions on the screen) and video calls

In addition, there have been systemic improvements to enhance the effectiveness of the anti-money laundering system and the insurance fraud prevention system. In other words, the FSC has clearly defined the roles and responsibilities of each member of the board of directors and compliance officers and has improved the system to appoint AML-related personnel to certain positions for a specified period to strengthen the expertise and independence of reporting officers to ensure effective anti-money laundering (AML) operations. Furthermore, to actively combat the increasing number of insurance frauds, the National Assembly approved an amendment to the Special Act on Prevention of Insurance Fraud. As a result, in the future, it will be possible to punish actions such as advertising or facilitating insurance fraud even before the insurance fraud occurs, and the legal basis has been established to strengthen the authority of the FSC to investigate insurance fraud and suspected cases of solicitation, inducement, and advertising activities related to insurance fraud, and to effectively take follow-up measures such as reporting to relevant agencies and initiating investigations.

Finally, the Personal Information Protection Act was significantly revised, establishing the ‘right to request transfer of personal information’, which allows data subjects to request that their personal information be transferred to them or to a third party. Additionally, changes have been made to enhance collection and use standards to account for the characteristics of portable video devices (such as autonomous vehicles, drones, delivery robots, etc) and strengthen compatibility with overseas legal systems, including diversifying requirements for overseas transfers beyond consent and establishing the authority to issue orders to suspend overseas transfers.

* The information in this chapter was accurate as of March 2024.

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