Financial Authorities Establish Surrender Value Reserves for Insurance Companies... Dividend Restrictions Imposed

[Asia Economy Reporter Song Hwajeong] Starting next year, insurance companies will establish a new reserve for surrender refunds, and guarantee reserves will also be transferred to statutory reserves. This is to prevent external outflows such as dividends.

According to the Financial Services Commission and the Financial Supervisory Service on the 25th, the 10th meeting of the Insurance Capital Soundness Advancement Task Force was held to discuss the reserve accumulation plan following the introduction of the new International Financial Reporting Standard (IFRS17).

The Financial Services Commission explained, "When insurance liabilities are measured at fair value, the insurance liabilities that insurance companies accumulate may decrease, potentially falling short of surrender refunds and guarantee reserves," adding, "The decreased liabilities are converted into capital (retained earnings), and if liability items that secure guarantee functions are converted into capital, there is a risk of unlimited external outflows, so supervisory measures have been prepared."

Surrender refunds refer to the amount that an insurance company returns to the policyholder upon cancellation of the insurance contract, and guarantee reserves are reserves accumulated in products such as whole life and variable insurance to pay insurance benefits or refunds above a certain level even when investment performance is poor.

Accordingly, the financial authorities have prepared a plan to accumulate the shortfall in surrender refunds as a "reserve for surrender refunds (statutory reserve)" within retained earnings under supervisory accounting. Statutory reserves are excluded from shareholder dividends, preventing external outflows of the shortfall in surrender refunds.

Along with this, guarantee reserves accumulated as liability items will also be transferred to statutory reserves within retained earnings. By setting the guarantee reserves, which were previously accumulated as liabilities, and future guarantee fees to be received as guarantee reserves, the same as the reserve for surrender refunds, as statutory reserves, the effect of restricting external outflows is achieved.

The financial authorities plan to implement the amendments discussed at this meeting starting next year, after prior notice and other procedures in the third quarter of this year.

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