Support for High-Interest Insurance Risk Management... Financial Supervisory Service Promotes Joint Reinsurance 활성화

Guidelines for Efficient Task Management Preparation

The financial authorities have prepared operational guidelines together with the industry to activate joint reinsurance that can prepare for interest rate fluctuations or increases in lapse rates.

The Financial Supervisory Service (FSS) announced on the 2nd that it has created such "Joint Reinsurance Operational Guidelines." Reinsurance is insurance for insurance companies, designed to prepare for the risk of increased insurance claims such as death benefits and disability payments. Unlike traditional reinsurance, joint reinsurance, introduced in April 2020, involves not only risk premiums but also premiums related to funds paid regardless of insurance incidents, such as maturity survival benefits and surrender refunds, as well as various business expense funds. It can prepare for not only insurance risk but also interest rate and lapse risks.

However, due to the low interest rate environment at the initial stage, the cost of joint reinsurance increased, resulting in only three cases, including a 500 billion KRW joint reinsurance contract signed by Samsung Life Insurance and Korean Re in November last year.

The FSS also noted that joint reinsurance has not been activated because product structures that can be developed, accounting treatments, and reinsurance data sharing systems have not been established.

Accordingly, the operational guidelines include product types and accounting treatment cases, key procedures at each work stage, and answers to frequently asked questions. In addition, standard formats for data provided by primary insurers and standard management guidelines for reinsurance companies' data were also prepared.

An FSS official said, "If joint reinsurance is activated, insurance companies will be able to manage financial soundness more efficiently by reducing required capital, in addition to expanding available capital by issuing subordinated bonds or capital securities as before." He added, "We will continue to encourage insurance companies to improve risk management capabilities and financial soundness by introducing advanced risk management tools for the smooth implementation of the new accounting standards (IFRS 17) and the solvency ratio (K-ICS) system."