New Solvency Assessment 'K-ICS' for Insurers, External Audit Guidelines Established

Establishing a System for the Nature, Scope, and Results of External Audits by Accounting Firms

The external audit guidelines for the newly introduced 'New Solvency Regime (K-ICS)' targeting insurance companies this year have been established.

On the 29th, the Financial Supervisory Service (FSS) announced that it has formulated the 'K-ICS External Verification Guidance' together with the Korean Institute of Certified Public Accountants. This is to provide a reference for external accounting firms when verifying the appropriateness of the solvency ratio calculation results under the new system.

According to the K-ICS implemented this year, insurance companies must prepare a financial condition statement based on the solvency supervision standards, calculate available capital and required capital based on the assets and liabilities in the financial condition statement, and measure the solvency ratio. Additionally, from the end of this year, these results must undergo external verification by an accounting firm.

Accounting firms will check whether insurance companies comply with asset and liability valuation standards and required capital measurement methods according to the main checklist items in the guidance. They will also obtain sufficient and appropriate evidence by utilizing judgments from actuarial experts and assess whether there is a significant risk of material misstatement in the insurance company. When submitting the year-end K-ICS related work report to the FSS, insurance companies must attach the verification report from the accounting firm.

Through these guidelines, the FSS expects the system regarding the nature, scope, and results of external verification by accounting firms to become clearer. It also anticipates that the external verification of K-ICS by accounting firms will enhance the reliability of insurance companies' solvency ratios and their ability to manage capital adequacy, which will also support the supervisory authorities' inspection work.

An FSS official explained, "The guidance will be distributed to insurance companies to be used in establishing internal verification procedures related to the management of insurance companies' solvency ratios."

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