Seeking Solutions to Insurance Accounting Issues... First Meeting of IFRS17 Joint Consultative Group

Listening to Challenges at Relay Meetings in May-June
Continuing Discussions on Key Issues Linked with Insurance Reform Council

The 'IFRS17 Joint Consultative Body,' launched last April to ensure the successful implementation of the new international accounting standard (IFRS17) introduced last year, will hold its first meeting. Attention is focused on whether this will serve as an opportunity to find solutions amid ongoing controversies related to insurance accounting, such as recent allegations of earnings inflation.

According to financial authorities on the 3rd, the IFRS17 Joint Consultative Body will hold its first meeting in the morning. The consultative body is jointly overseen by the Insurance Risk Management Bureau and the Accounting Supervision Bureau of the Financial Supervisory Service, with support from the Insurance Division of the Financial Services Commission. Professors of accounting and actuarial science will also participate as expert members to address issues related to accounting, actuarial science, and insurance products.

From May to June, the joint consultative body conducted six relay meetings with insurance companies producing insurance financial information, accounting and actuarial firms verifying it, and analysts who use it. During these meetings, field practitioners expressed that while the introduction of IFRS17 has aligned insurance financial information with market value, there is still considerable confusion as it is in the early stages of implementation. They also conveyed that the standards for actuarial assumptions such as mortality rates, risk rates, and loss ratios used to calculate the Contractual Service Margin (CSM) are ambiguous, and there are few related experts, resulting in significant time required for the work.

Similar opinions have recently been voiced in Europe, which adopted IFRS17 in the same year as South Korea. According to the IFRS17 report published by the European Insurance and Occupational Pensions Authority (EIOPA) last April, the lack of specific guidelines in the IFRS17 standards and the shortage of experts in interpreting the standards were identified as major challenges, highlighting the difficulties in implementing the system.

At this meeting, the operation plan of the joint consultative body and the key issues identified during the relay meetings will be discussed. A Financial Supervisory Service official stated, "We plan to address various difficulties raised in the meetings, including the pros and cons of IFRS17 adoption, major issues, and suggestions," adding, "We will also conduct the first discussion on practical issues related to the calculation of fulfillment cash flows."

It is understood that the meeting will not specifically discuss the core issue of CSM amortization rates, which is central to the controversy over earnings inflation by insurance companies. However, since users of insurance accounting information such as analysts want to enhance the reliability of insurers' earnings, financial authorities plan to continue communication in connection with future insurance reform meetings and other forums.