At the Fourth Insurance Reform Conference, organized on November 4, 2024, by the Financial Services Commission (“FSC”) and the Financial Supervisory Service (“FSS”), to enhance the reliability and stability of insurance accounting, the FSC and FSS finalized and announced the Guidelines on Key Actuarial Assumptions under IFRS 17 and the Insurance Liability Discount Rate Soft-Landing Plan. The key features of these newly announced measures are as follows:
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Guidelines on Key Actuarial Assumptions under IFRS 17 |
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To address the industry practice of applying high surrender rates on low/no surrender value products, the following requirements shall apply:
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In principle, surrender values must be determined by applying a log-linear model (converging to 0.1%). |
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Although a linear-log model or a log-log model may be used on an exceptional basis, to do so, insurers must (i) publicly disclose, in their audit reports or otherwise, any resulting discrepancies as compared with applying a log-linear model (such as any differences in CSM, K-ICS ratios, net income, etc.), and (ii) report such differences to the FSS on a quarterly basis. |
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To address the industry practice of applying low surrender rates at the time of bonus payments for short-term premium whole life insurance policies, the following shall apply:
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The surrender rate must (i) be reverse-calculated based on the persistency ratio of standard term products, or (ii) be set at a 30% or higher rate. |
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Insurance Liability Discount Rate Soft-Landing Plan |
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While the original plan was to extend the Last Observed Term for determining the discount rates for the mark-to-market valuation of insurance policies from the current 20 years to 30 years by 2025, in light of the current interest rate environment, the proposed extension shall be phased in gradually, over a three-year period.
The Guidelines on Key Actuarial Assumptions under IFRS 17 will be effective from the fiscal year end 2024, and the Insurance Liability Discount Rate Soft-Landing Plan will be effective from January 2025.
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