By Insurance Asia | February 22, 2024<\/p>\n
The adoption of K-ICS drove operational strategies of Korean insurers to focus on expanding sales of protection-type products with high profitability.<\/p>\n
The implementation of Korean Insurance Capital Standards\u2019 (K-ICS) stricter risk measurement has resulted in a decline in the average solvency ratio of South Korea’s insurance industry, according to a report by AM Best <\/p>\n
The K-ICS, introduced alongside the adoption of IFRS 17 accounting standards in January 2023, aims to enhance risk management practices in line with global standards.<\/p>\n
Under K-ICS, insurers’ assets and liabilities are evaluated using mark-to-market approaches, differing from the previous risk-based capital (RBC) regime.<\/p>\n
Key changes include the introduction of new risk categories such as longevity, lapse, expense, catastrophe, and asset concentration risks.<\/p>\n
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\nAlthough the impact on solvency ratios was less severe than anticipated, K-ICS’s economic value-based model and stricter risk measurement are expected to exert downward pressure on solvency ratios, particularly for insurers with weaker asset liability management.<\/p>\n
However, the current high market interest rates and insurers’ efforts to enhance asset liability management could partly mitigate this pressure.<\/p>\n
The transitional measures introduced by the Financial Supervisory Service have aided insurers in navigating the transition to K-ICS without significant drops in solvency ratios.<\/p>\n
The adoption of K-ICS has influenced the operational strategies of Korean insurers, leading to a focus on expanding sales of protection-type products with high profitability. <\/p>\n
Additionally, the amortisation of contractual service margin (CSM) under IFRS 17 is expected to contribute to organic capital growth over time. <\/p>\n
Moreover, as assets and liabilities are measured at market value under K-ICS, a narrower duration gap would reduce insurers’ solvency sensitivity to interest rate fluctuations.<\/p>\n","protected":false},"excerpt":{"rendered":"
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