Korean and foreign insurance experts suggested various solutions against low interest rates in an insurance industry symposium held at Westin Chosun Hotel in Sogong-ro in Seoul on October 19.
“Insurers should establish strong risk management systems in preparation for global uncertainties such as fixed low interest rates,” stressed Jin Woong-sup, head of Financial Supervisory Service. It is a hard fact that Korea has difficulties due to its volatile foreign exchange market, regulations on foreign currency hedging and a scarcity of overseas bond experts among others, although Korea sees overseas investment incentives increasing in terms of low interest rates and asset duration.
With respect to it, overseas investment with a focus on long-term safe assets can minimize risk, said Cho Young-hyun, a researcher at the Korea Insurance Research Institute. “It is necessary for insurers to enhance their foreign currency hedging and overseas investment risk management capabilities,” Cho added.
Attention was also paid an analysis that insurers should devote themselves to their main business rather than seek new things as a measure to cope with low interest rates. Andrew Gaskell, a senior actuary at RGA, a global reinsurer, introduced a case of RGA which concentrate insurance retention rates and varies insurance contract reviews. Gaskell insisted that insurers share investment risk and design products with a focus on guarantees.
A speaker called for preemptively coping with the introduction of the second phase of the International Financial Reporting Standard (IFRS4) in the symposium. “Even though the introduction of the second phase of the IFRS4 will execute fair value accounting on debts, which will result in more burdens on insurers to accumulate additional reserves, it will significantly contribute to taking the lead in the steady growth of the Korean insurance industry,” said the head of Financial Supervisory Service.
“At Axa which introduced Solvency II, the strategic status of risk management was decided by enhanced core business and core business decisions were made in terms of profits vis-a-vis risk in order to elevate the transparency and an understanding of capital management within the organization,” said Jean-Sébastien Lagacé in charge of risk management at Axa Global.
With reference to the introduction of the second phase of the IFRS4, financial regulators emphasized once again that they will secure international compatibility by preparing measures to rationally harmonize international accounting standards and soundness supervision standards.
Besides, insurers needed to expand their capital and asset-liability management (ALM) for the purpose of dealing with a drop in capital and an increase in volatility caused by fair value accounting on debts after the introduction of the second phase, experts said in unison.