K-ICS Implementation Approaching, Transitional Measures Confirmed to Mitigate Insurers' Financial Shock

[Asia Economy Reporter Park Sun-mi] Ahead of the introduction of the new solvency regime (K-ICS) to be newly implemented from 2023, financial authorities have decided to implement transitional measures including recognizing hybrid capital bonds as core capital to mitigate the financial shocks to insurance companies.

On the 27th, the Financial Services Commission held the 8th meeting of the "Insurance Capital Soundness Advancement Task Force" and finalized the broad framework for the operation plan of the K-ICS transitional measures, which will be implemented together with the 2023 insurance contract accounting standards (IFRS17).

First, for all insurance companies, hybrid capital bonds issued before the implementation of K-ICS will be recognized as core capital during the transitional period. However, only up to 15% of the total required capital will be recognized as core capital, and any excess will be classified as supplementary capital. Additionally, the deadline for submitting K-ICS related business reports and management disclosures will be extended by one month during the transitional period to ease the operational burden on insurance companies.

Separate transitional measures selectively applied to applying insurance companies will also be implemented. The increase in reserves due to the present value evaluation of insurance liabilities will be allowed to be recognized and accumulated gradually over the transitional period instead of being recognized all at once. The increase in reserves can be re-evaluated if reasons arise during the transitional period. Furthermore, insurance risks newly recognized by insurance companies under K-ICS will be allowed to be recognized gradually during the transitional period.

Moreover, even if the financial soundness ratio under K-ICS is below 100%, if the existing RBC ratio exceeds 100%, timely corrective actions will be deferred.

The financial authorities will allow the application of these transitional measures on the condition that insurance companies pre-report their application and comply with strict constraints such as "cancellation of transitional measures if conditions are not met." They will also conduct post-management to encourage insurance companies benefiting from the transitional measures to actively make self-help efforts. To prevent moral hazard, supplementary measures such as imposing disclosure obligations, restricting management evaluation grades, and limiting excessive capital outflows have also been prepared.

Meanwhile, the meeting also discussed the progress of legal amendments accompanying the introduction of IFRS17 and revisions to subordinate regulations.

With the upcoming implementation of IFRS17, insurance companies will have to prepare financial statements in parallel according to IFRS17 starting next year. Therefore, amendments to insurance business laws are underway to establish the necessary legal and institutional foundations. The "Insurance Business Act Amendment Bill" to support the introduction of IFRS17 was submitted to the National Assembly in July and is currently pending in the Political Affairs Committee. Regardless of this legislative amendment, revisions to enforcement ordinances and enforcement rules that can be pursued are being processed after public notice. Necessary revisions to insurance supervisory accounting, insurance product-related insurance business supervisory regulations, and enforcement rules are also scheduled to be announced in October.

A financial authority official stated, "We plan to systematically and smoothly proceed with the legal amendment work, including actively supporting the passage of the Insurance Business Act for the implementation of IFRS17," and added, "Furthermore, we will closely monitor the impact analysis and industry preparation status according to IFRS17 implementation·and K-ICS 4.0, and strengthen industry consulting as well."

This content was produced with the assistance of AI translation services.