Controversy Over New Insurance Accounting Settled... 'No Retroactive Application' Starting Next Year

New Accounting Standards Guideline Points to Prospective Application
Conditional Retrospective Application Allowed Until This Year
Uniform Prospective Application from Next Year
"No More Controversy... Request for Cooperation"

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

The financial authorities have put an end to the controversy over the application methodology of the newly introduced insurance company accounting standards guidelines starting this year. They have decided to limit the retrospective method (applying the new standards retrospectively to past periods) to the end of the year as requested by some non-life insurance companies, and from next year onwards, only the prospective method (applying from the current period) will be allowed. Although the retrospective method can be applied until the end of the year, companies must also explain the situation under the prospective method through management disclosures and financial statement notes, which increases the workload, effectively narrowing the choice to the prospective method.

On the 27th, the Financial Supervisory Service (FSS) held a briefing session on IFRS17 guideline accounting treatment at its headquarters in Yeouido, Yeongdeungpo-gu, Seoul, chaired by Lee Myung-soon, Senior Deputy Governor of the FSS. The session was attended by CEOs of insurance companies, the chairpersons of the Life Insurance Association and the Non-life Insurance Association, and representatives from audit divisions of accounting firms.

The briefing was attended by CEOs from four life insurance companies including Samsung Life Insurance, Hanwha Life Insurance, Kyobo Life Insurance, and Shinhan Life Insurance, as well as CEOs from six non-life insurance companies including Samsung Fire & Marine Insurance, DB Insurance, KB Insurance, Hyundai Marine & Fire Insurance, Meritz Fire & Marine Insurance, and Lotte Insurance, along with the chairpersons of the Life and Non-life Insurance Associations. Representatives from the audit divisions of four accounting firms?Samil Accounting Corporation, Samjong Accounting Corporation, Deloitte Anjin LLC, and EY Han Young?were also present.

Following growing controversy over the application method of the guidelines announced last month, the authorities have settled on the prospective method. While allowing limited application of the retrospective method, they imposed deadlines and various conditions. The retrospective method can only be applied until the end of this year. From next year, all insurance companies must apply the prospective method.

Even when using the retrospective method, companies must also disclose the results as if the prospective method had been applied. When preparing financial statements, differences in financial impact between applying the prospective method and the retrospective method must be separately disclosed in insurance liabilities, capital items, and current profit or loss in the financial statement notes and management disclosures.

Conditions were also imposed on the application itself. The insurance contract margin (CSM), a profitability indicator under the new accounting standard IFRS17, must not be increased by retrospectively applying various accounting policies or fair values. Insurance liabilities under the solvency indicator, the Korea Insurance Capital Standard (K-ICS), cannot be retrospectively adjusted, and only insurance liabilities under IFRS17 can be retrospectively applied.

Regarding the application of loss ratios for indemnity health insurance, the use of a 'combined ratio' that considers both insurance claims and operating expenses was mandated. The request by some insurers to use the risk loss ratio (the ratio of paid claims to risk premiums) was rejected. This is to prevent the excessive recognition of profits related to operating expenses, which could convert loss-making insurance contracts into profitable ones.

If the prospective method is used, the guidelines can be applied immediately from June. If the retrospective method is applied, it will be applied from the September settlement. Going forward, the FSS plans to monitor the application status of the guidelines and, if necessary, distribute additional guidelines through meetings with accounting firms and analysis of actual versus expected results.

Lee Myung-soon, Senior Deputy Governor of the FSS, stated, "Further review or revision of the guidelines is no longer feasible," and urged, "While we will actively communicate regarding the difficulties and requests of insurance companies, we ask insurance companies and accounting firms to work together for the successful establishment of IFRS17 rather than engaging in unnecessary disputes."

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