As discussed in our previous newsletter (Link), following the introduction of the "Enhanced Actuarial Supervision Framework for the Insurance Industry," the Financial Supervisory Service ("FSS") has established a dedicated Actuarial Supervision Team to strengthen its analysis and verification of the insurers' actuarial assumptions. Subsequently, on March 3, 2026, the FSS announced its plan to conduct periodic and ad hoc actuarial inspections. Key details are as follows:
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Scope of Actuarial Inspection
The FSS's Actuarial Supervision Team will examine the components of insurance liability valuation, such as actuarial assumptions and cash flow modeling, and the status of internal control operations, and verify whether insurers have duly complied with the prudential rules, regulatory accounting standards and other applicable laws and regulations in their valuation of insurance liabilities.
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For the actuarial assumption determination process, the Actuarial Supervision Team will review the reasonableness and consistency of the determination methods and examine the appropriateness of each unit of actuarial assumption and the actuarial assumption framework.
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For cash flow modeling, the Actuarial Supervision Team will examine whether the estimation of cash flows is consistent with the underlying documentation, such as the policy terms and conditions and the policy reserve calculation method statement, and the reasonableness of the cash flow estimation.
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For internal controls, the Actuarial Supervision Team will assess whether internal controls operate effectively when actuarial assumptions are changed and whether internal control procedures have been implemented for the cash flow model.
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Plans for Actuarial Inspection
Actuarial inspections will be conducted through periodic and ad hoc inspections, with the inspection cycle differentiated based on the insurer's asset size.
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Periodic inspections will be conducted for insurers subject to regular examinations. The Actuarial Supervision Team and the Examination Department will form a joint task force to conduct a comprehensive review covering actuarial matters and policy reserves.
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Ad hoc inspections will be conducted on specific insurers or items, based on ongoing monitoring, reports, and other relevant information.
For any minor issues identified through inspections, the FSS will issue recommendations for improvement. However, for any violations of applicable laws or regulations, such as the Insurance Business Act or the Act on Corporate Governance of Financial Companies, sanctions will be imposed on the relevant institution and its officers and employees.
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The actuarial assumptions report which will serve as the basis for actuarial inspections is expected to be introduced in the second quarter of 2026 following a pilot operation and feedback collection process. In addition, the FSS plans to commence its periodic inspections in the first half of the year to review actual practices regarding the application of actuarial assumptions. As the Actuarial Supervision Team will begin full-scale activities, it would be advisable for insurers to conduct a prior self-assessment of the appropriateness of their actuarial assumptions.
[Korean Version]
