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Insurers hit by 'IFRS 17' shocks

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By Yoon Ja-young

The country's life insurance companies are suffering from plunging sales as they prepare for a new accounting rule that will be adopted in 2021.

According to the reporting by the country's 12 life insurance companies, their average operating revenue dropped 5.08 percent in the first half of the year compared with a year ago.

Samsung Life, ING Life, and DGB Life were the only players that saw their operating revenues increase. Samsung saw a 5.83 percent rise to 14.68 trillion won, thanks to sales of its stake in Samsung Electronics. DGB's operating revenue expanded 12.85 percent to 624 billion won, and ING marked a 3.52 percent rise to 2.26 trillion won.

Tong Yang Life, meanwhile, saw a 19.97 percent drop in operating revenue to 3 trillion won, while Heungkuk Life also sustained a 16.82 percent contraction to 2.4 trillion won and KDB Life had a 10.5 percent decrease to 24 billion won. Hanwha and Kyobo Life, which are among the big three, also sustained around drops of 4 percent to 5 percent in operating revenue.

Behind the poor performance is the new international financial reporting standard of IFRS17, which is to be implemented in 2021. The new global insurance accounting rule is forcing insurers to overhaul management strategy as well by enhancing their capital requirements.

As the new rule will evaluate liabilities based on market value, insurers, which should accumulate funds so they can later return insurance money to subscribers, are having to accumulate more funds than before.

"Insurers in the country could continue operating with little capital since there wasn't much demand regarding capital. The country has maintained lax capital regulations to cope with explosively growing demand for insurance while accumulation of capital wasn't complete," said Sean Chang, an analyst at Samsung Securities.

"The government, however, could not delay introduction of the global standard anymore in the era of IFRS 17."

The new rule prompted insurers to shun selling savings-type insurances, though these products have been offering them huge premium incomes as they are fully calculated as liabilities. Insurers switched to non-savings insurances such as variable insurance and whole life insurance instead.

Their premium income from non-savings insurance increased by 382.4 billion won as a result, but it was never enough to offset the 4.2 trillion won decrease in premium income from savings-type insurances.

According to Korea Insurance Research Institute, insurers' premium income from savings insurance is expected to drop 13.3 percent this year, while their income from non-savings insurance will increase only 1.4 percent due to saturation of the whole life insurance market.

Insurers are turning eyes toward health insurances, but only big players are likely to fare well in this market, according to analysts.

"With the IFRS17 introduction, the insurers without adequate capital will have difficulty entering the health insurance market as correctly calculating the risk ratio is critical in this market," Chang said.


Yoon Ja-young yjy@koreatimes.co.kr


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