Will South Korea’s financial regulator introduce the International Financial Reporting Standards (IFRS 17) and the Korean Insurance Capital Standard (K-ICS) to the domestic insurance industry at the same time in 2021? Industry watchers say a subtle change has been detected in the regulator's stance on the matter.
The insurance industry requested again on July 5 that the IFRS 17 and the K-ICS be flexibly adopted. It has continuously asked for a delay. It said the systems should be phased in, considering the preparedness of insurance companies. The financial authorities initially turned a deaf ear to the insurance industry’s request that a simultaneous introduction of the IFRS 17 and the K-ICS be postponed. However, the insurance industry hopes that the financial regulator would change its stance as Choi Jong-ku, chairman of the Financial Services Commission (FSC), said during a seminar a day earlier, “We will introduce the two systems without imposing a big burden on insurance companies.”
The insurance industry has said that the financial regulator should either phase in or postpone K-ICS’s implementation, claiming that a simultaneous adoption with the IFRS 17 will place a huge burden on the insurance sector. The K-ICS is a new system that calculates the ratio of risk-based capital (RBC) by evaluating insurers’ assets and liabilities based on market value. Insurance companies say that a simultaneous introduction of the K-ICS and the IFRS 17 will have an impact not only on their profitability but also on their survival. Accordingly, the insurance industry has been calling for a phase-in of the IFRS 17 and the K-ICS systems.
To increase the ratio of RBC in preparation for the IFRS 17 and the K-ICS systems, the insurance industry is trying to increase its available capital (the numerator of RBC) by issuing subordinated security bonds and consol bonds, but there is a limit with such efforts alone. Europe, which has similar regulations on capital with South Korea, has also introduced the IFRS 17 and the Solvency II, which is a similar system to the K-ICS, with time differences, according to the insurance industry.
An official from the industry said, “I heard that Europe also discusses ways to delay the introduction of the IFRS 17. The South Korean government should reconsider the simultaneous adoption of the IFRS 17 and the K-ICS systems as well.”