New accounting standard benefits large non-life insurers
By Anna J. Park | The Korea Times | May 8, 2023
KB Insurance has posted a record-high quarterly profit of 253.8 billion won ($192 million) in the first quarter this year, a 25.7 percent jump from the same period last year. The hike is mainly attributed to the implementation of the International Financial Reporting Standard (IFRS) 17, a set of new global accounting standards, starting this year.
Aiming to increase transparency and consistency in the accounting practices of insurance companies, IFRS 17 requires that insurance liabilities be calculated at present value, not book value. Also under the accounting standards, the Contractual Service Margin (CSM), which is the unearned profit from an insurance contract that an insurer will recognize over the coverage periods, is recalculated in earnings reports every year.
As a result of the changed accounting system, the earnings of KB Insurance ― KB Financial Group’s non-life insurance affiliate ― have mostly been favorably affected by the IFRS 17 implementation. The CSM of the company during the first quarter was estimated at 8.19 trillion won, which is an about eight percent increase from the same period last year. The indemnity insurance company has focused more on long-term insurance contracts than its competitors, and this has worked to the firm’s advantage under the new accounting system.
Meanwhile, KB Life Insurance, a life insurance affiliate of KB Financial Group, posted a favorable result, mainly from the completed merger with former Prudential Life. The life insurance company logged a quarterly net profit of 93.7 billion won in the first quarter.
As for Shinhan Financial Group’s insurance subsidiaries, Shinhan Life posted a net profit of 133.8 billion won during the first quarter, a decline of 3.5 percent year-on-year. Yet the earning is viewed as a good performance, considering the deterioration of insurance business environments recently.
The group’s non-life insurance affiliate Shinhan EZ General Insurance logged a net loss of 90 million won during the first quarter. Non-life insurance is a new addition to the group. It acquired a 95 percent stake in BNP Paribas Cardif General Insurance.
Two insurance affiliates of Hana Financial Group ― Hana Life Insurance and non-life Hana Insurance ― both logged a net loss during the first quarter. Hana Life posted a quarterly net loss of two billion, while non-life affiliate Hana Insurance logged a quarterly net loss of 8.3 billion. Hana Insurance explained that the quarterly loss was due to the infrastructure construction of a next-generation insurance procedure system.
According to the Korea Insurance Research Institute (KIRI), the adoption of IFRS 17 works to the advantage of large non-life insurers. The CSM is subject to adjustment in each reporting period and tends to increase when an insurance firm has more long-term contracts in store.
While large non-life insurers are to be benefitted from the new accounting system, small and medium-sized insurers would have to bear more costs in marketing and building infrastructure for more long-term insurance plan sales.