big impacts for insurance companies in Korea based on IFRS & Solvency II

Korea impact IFRS & Solvency II
Written by Paul

Today, 25 life insurance companies that conduct business in South Korea are required to increase their capital by at least 50 trillion won within three years under the Solvency II Directive as well as the New International Financial Reporting Standards (IFRS).

Additional capital required

Especially, the amount in as enormous as 43.4 trillion won for the leading five, this is, Hanwha, Samsung, Kyobo, ING and NH Nonghyup. Also, the leading three with the higher ratios of high interest goods require to increase their capital by an amount equals to 10 percent of their total assets.

Before, the South Korean Insurance Institute insinuated that the domestic life insurance industry will be about 50 trillion less won in capital as well as the risk-based capital (RBS) of the companies in the industry will indicate an average reduction or so in phase II of IFRS 4 was put in place in the current state.

Time is running for IFRS 4 Phase II

Phase II of IFRS 4 is scheduled to be effective in the year 2020 in numerous developed economies. Based on it, the organizations’ debt is determined based on not the original values but instead the market values while their policy reserves are to be placed on their ledgers as liabilities via yearly values reconsiderations, which may lead to an amount of extra capital needs, However, saving insurance products omitted from their insurance revenues under the new standards, which indicates a decline in their revenue.

These firms offered a large number of their insurance policies at fixed high interests’ rates with the interest rates in the country skyrocketing in the beginning of the financial year crisis in the year 1997. Today, however, the base rate is estimate to be 1 percent in South Korea along with those products is posing a considerable liability on the insurance funds payments while the new accounting needs are expected to add fuel to the fire.

At the same time, smaller or foreign insurance firms as well as those that did not skip on the bandwagon in the late 1990s have been discovered to be exposed to less or minimum additional capital needs.

About the author


IFRS 4, IFRS 17, Solvency II, FS-PER, many synonyms for a big challenge insurance companies have to face within the next years to fulfill legal requirements from IASB, European Insurance and Occupational Pensions Authority (EIOPA) and others- and i love to write about it.

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