The International Accounting Standards Board (IASB) held a regular meeting on March 17 and decided to postpone the implementation of IFRS17 from Jan. 1, 2022 to Jan. 1, 2023. Although this alleviated the short-term burden of insurers, the long-term financing burden of life insurance companies in particular is likely to increase with very low interest rates predicted to result in less investment profits and negative margins.
IFRS17 is to calculate insurance money based on a market value instead of the cost at the time of a contract. The debts of insurers, which sold a lot of fixed and high interest products in the past, amount to trillions of won in the case of market value-based valuation. Besides, the debts increase much more than predicted when interest rates are very low. This means they need to increase their capital to maintain their soundness in the event of a change in accounting standards.
With the implementation of IFRS17 postponed, local insurers can work on recapitalization plans with more room. In addition, relatively smaller and understaffed insurers with less capital can make more elaborate preparations before the introduction of IFRS17.
Still, it is said that the one-year postponement cannot offset their ongoing difficulties with interest rates close to zero. According to most insurers, the financing burden attributable to the interest rates is hanging much heavier than the recapitalization burden attributable to IFRS17. In addition, they are facing more and more pressure as interest rate reduction is forecast to continue for a while.