Korean insurance industry is Currently facing the rapid changes of financial environment in which the financial soundness is the key issue. Under these circumstances, it is essential for insurance company to maintain sufficient capital to cover unexpected losses. Therefore, it is important to test whether the current solvency system is proper in the Korean economical and financial environment.
The main purpose of this study is to measure the appropriateness of solvency margin on the interest rate risk of life insurance companies and to search the direction of risk management of each insurance company under the regulation policy of insurance supervisory authorities. A Monte-Carlo simulation method is used in the cash flow testing.
In conclusion, the level of current solvency margin is not adequate to prevent of Korean life insurance companies from the insolvency. It means that a new solvency margin requirement system is required to reflect the various risks of the Korean insurance companies.
