The Financial Services Commission (the “FSC”) prepared and announced proposed amendments to the Enforcement Decree and Enforcement Rules of the Insurance Business Act to reflect the IFRS 17 which will be introduced to Korea from 2023. Companies in the insurance sector are invited to submit their opinions on the proposed amendments to the FSC by August 16, 2021. Key changes to be implemented by the proposed amendments are as follows:
1. Change of terminology
The term “balance sheet” is changed to “statement of financial position” and the term “income statement” is changed to “comprehensive income statement.”
2. Change of the definition of “policy reserve”
The definition of “policy reserve” is changed to reflect the concept that it must be accumulated based on the “present value at the time of valuation.”
3. Change of standards for reinsurance asset valuation and accounting of losses
Each ceding insurer and reinsurer is required to valuate its own policy reserves.
When a reinsurer is expected to be insolvent, the ceding insurer is required to account for the expected losses.
4. Matters concerning K-ICS (Korean Insurance Capital Standard), a new capital adequacy regulation
An insurer is required to measure longevity risks, surrender risks, expense risks, catastrophe risks and asset concentration, risks which are not measured under the existing RBC system, when calculating the amount of required capital.
5. Improvement of the system for appointed actuary
The authority and independence of the appointed actuary are strengthened by (i) requiring the appointed actuary to attend board of directors’ meetings at least once a year to report on matters concerning the company’s financial soundness, (ii) requiring the compensation and evaluation standards for the appointed actuary not to be linked to the company’s financial performance, and (iii) reinforcing the process of appointing and dismissing the appointed actuary.
The FSC plans to complete the amendment of the Enforcement Decree and Enforcement Rules of the Insurance Business Act in the second half of 2021.