[1mmGeumyungTalk] From K-ICS to IFRS17... Insurance Companies with Overwhelmed Minds

Confusion Rises with Initial System Introduction
More Detailed Criteria Needed... IT Infrastructure Burden Also Present

With the simultaneous implementation of the new solvency regime (K-ICS) and the new accounting standard IFRS17 this year, internal staff at insurance companies are expressing concerns about increased workload and confusion. The burden related to IT infrastructure has also grown, leading some insurers to consider adopting cloud solutions.

According to industry sources on the 14th, insurance companies are actively working to respond to the newly introduced K-ICS and IFRS17 starting this year. IFRS17 is an accounting standard that requires liabilities to be measured at fair value rather than cost. It also introduces the concept of Contractual Service Margin (CSM), which recognizes future profits from insurance contracts over time annually. K-ICS is a newly established solvency assessment indicator that, unlike the previous solvency ratio (RBC) which measured some assets and liabilities at cost, evaluates all assets and liabilities at fair value.

The simultaneous introduction of these two major systems has caused insurance company employees to voice concerns about their workload. Although regulators have taken various measures, such as extending the deadline for submitting K-ICS-related reports and management disclosures by one month, confusion still persists. In particular, the fact that only broad frameworks have been provided rather than detailed standards, leaving much room for interpretation, is seen as the biggest burden.

An employee A from a large insurance company said, "It would be helpful if there were more detailed standards on how to evaluate insurance liabilities for certain insurance products, but since there aren’t, it makes me uneasy," adding, "Ultimately, we have to simulate all possible scenarios, which increases the workload." Employee B from a small to medium-sized insurer also shared, "When large companies disclosed their results last year, they provided information aligned with IFRS17, which we tried to use as a reference, but the detailed calculation standards for CSM differ, making comparisons difficult," and added, "Insurance companies with similar portfolios should have similar results, but due to various interpretations, differences arise, causing confusion."

There is also a burden related to IT systems. Since IFRS17 requires insurance liabilities to be measured at fair value, the time required for actuarial closing increases exponentially, inevitably raising IT infrastructure needs and related costs. Some small to medium-sized insurers find it difficult to expand their own systems and are reportedly considering using external infrastructure such as cloud services. However, in such cases, compliance with various safety requirements set by the Financial Supervisory Service is necessary, so whether actual use is feasible and cost-effective remains uncertain.

While some trial and error is inevitable for the time being, there is a consensus that this is the right path forward. An industry official explained, "Compared to the previous system that measured liabilities only at cost and could accelerate actuarial calculations by recognizing future profits all at once, this new system allows for a more transparent and accurate understanding," adding, "Once it stabilizes, it will enable a better grasp of insurers’ situations even during times filled with internal and external uncertainties like now."

(Source=Getty Images Bank)

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