South Korea: Insurers sell assets ahead of new accounting rules
Source: Asia Insurance Review | Jul 2016
Insurers in South Korea are selling real estate to amass reserves that will be required upon an upcoming major change in global accounting rules.
Financial Services Commission (FSC) Chairman Yim Jong-yong stressed that the government will push forward a plan to “embrace the International Financial Reporting Standards (IFRS) 4 Phase II among local insurers, as soon as the International Accounting Standards Board confirms details about the new rule”, reported The Korea Times.
The new rule, which the government seeks to introduce to Korea by 2020, will assess insurers’ liabilities based on market value, rather than book value. This allows a much “fairer” assessment on insurers’ ability to withstand stress, according to the FSC, but also forces them to build reserves of KRW50 trillion (US$42 billion) to cover anticipated
losses.
“Rather than opposing the introduction of IFRS 4 Phase II citing transient financial impact, it is important to share the optimistic impact that the rule will impose on the Korean insurance industry,” Mr Yim said, adding the FSC will come up with schemes to limit the potential impact on insurers of the accounting rules.
Sales of real estate holdings
Meanwhile, insurers are striving to come up with reserves through various ways, including sales of their real estate holdings.
Samsung Life, Korea’s biggest life insurer, has already agreed to sell its office in Seoul. Samsung Fire will sell its 50% stake in its office in Gangnam for KRW100 billion. Kyobo Life is also selling its offices outside of Seoul.
“Life insurers are facing a huge burden because they have sold long-term insurance products with fixed high interest rates during the 1990s and 2000s,” an industry source said.