South Korean re/insurers are preparing for the implementation for new accounting and solvency rules in 2022, which AM Best believes are likely to take a heavy operational toll on the market.
The introduction of the International Financial Reporting Standards 17 (IFRS 17) will fundamentally change the accounting view on the valuation of insurance contracts and profit recognition for companies in the country.
Similarly, the K-Insurance Capital Standard (K-ICS) solvency regime is expected to place a heavier burden on capital, introducing more volatility to available capital and required capital on companies.
South Korean insurers also face a pressing need to revamp business strategies, AM Best said, as companies will need to restructure product mixes and investment portfolios, as well as raise capital under the new regimes.
AM Best expects the new frameworks to lead to greater volatility to liabilities on insurers’ balance sheets as market rates fluctuate.
In other markets the impact of new accounting standards tends to fall mostly on the life segment, but in South Korea the issue will also apply to the non-life segment, given that non-life insurers in the country can also sell long-term insurance products, meaning their business often overlaps.
However, analysts expect non-life insurers to bear a relatively limited impact, given that they have had a shorter history of selling long-term insurance, and have been less aggressive than their life counterparts in pushing savings-type products.
Overall, AM Best expects the new frameworks to benefit customers over the long term, as they will provide an impetus for insurers to restructure their business mix, improve long-term profitability, and streamline internal processes.
