'Risk-Based Capital' to Change Paradigm of Insurance Industry

Allianz Life Insurance CEO, Cheong Mun-kuk

By Yoon Ja-young
Staff Reporter

The adoption of risk-based capital (RBC), an evaluation system designed to provide a capital adequacy standard related to risks and to raise a safety net for insurers, will change the paradigm of the insurance industry, Allianz Life Insurance CEO said.

"The adoption of RBC means much more than the strengthening of regulations on insurers' solvency ratio. It means the paradigm of the whole industry would change," said Cheong Mun-kuk, president & CEO of Allianz Life Insurance, in an interview with The Korea Times. Solvency ratios are measures to assess a company's ability to meet its long-term obligations.

Currently, the regulator simply assesses insurers' ability to pay out insurance money. With the adoption of RBC system, however, the regulator will be assessing the level of risk each insurance firm faces in asset management from 2011.

The new rule, which is used to set capital requirements considering the size and degree of risk taken by the insurer, is likely to pull up the solvency ratio of Allianz, which has managed its assets conservatively.

"In the past, it was OK to do business in a risky way as long as you generated profit. It won't be so anymore. The insurers will have to think about risk," Cheong said. As the risk will be linked with capital, risky management will result in shareholders having to pay more as companies will need to hold more capital.