Beginning on January 1 in 2021, all insurance companies across the world, including those in Korea, must report their debts in terms of market value instead of book value, based on a new insurance industry accounting principle called the International Financial Reporting Standards 17 (IFRS 17). Industry experts predicted that Korean insurers will see their debt balance balloon to more than 40 trillion won and be pressured to increase their capital base by a large margin.
According to an internal report published by the International Accounting Standards Board (IASB) examined by the Korea Economic Daily on November 7, the board renamed the Phase 2 of the IFRS 4 as IFRS 17 and set its implementation date at the beginning of 2021. The standards board will officially announce this in a meeting to be held for three days from November 14.
The nation's insurance industry is under siege due to the announcement as they expect to have a much higher debt balance under new accounting standards for high-return, fixed-rate policies they sold for the past several years. The ratio of fixed-rate policies in total is 43 percent for Korean insurance companies,
The Korea Insurance Development Institute estimated that the debt balance of the nation's insurers would rise by 47 trillion won once IFRS 17 is in place. Once the debt balance rises, the balance of their available capital would shrink, which in turn brings down the risk-based capital ratio.
An insurance industry official said, "Assuming that the scheme is introduced now, the risk-based capital ratio of nine Korean insurance firms would fall below the unsustainable 100 percent." The nation's insurers asked the International Accounting Standards Board to delay the requirement by three to five years but were rejected.