No country was faster to implement the IFRS17 accounting standard than South Korea. But according to risk management technology provider FIS, what were the benefits, challenges and lessons of early adoption for the country’s leading insurance companies?
When IFRS17 came into force in January 2023, many of South Korea’s insurers had already dedicated the best part of six years to the new accounting standard.
From the moment the International Accounting Standards Board (IASB) released the final draft of IFRS17, in 2017, Korean firms began working in earnest on implementation.
Insurers in Europe, by comparison, were typically much later off the mark – perhaps understandably so. With Solvency II behind them, these firms had already prepared their operations for a compliance framework and were somewhat less daunted by another, albeit major, regulatory change.
However, Korea’s equivalent of Solvency II, the Korean Insurance Capital Standard (K-ICS), was yet to challenge the domestic insurance market and in fact would come into force at the same time as IFRS17. So, together, the complex requirements of both regimes would present a two-pronged challenge for risk management systems.
For Korean insurers, there was no time to waste and there were rewards to reap from timely IFRS17 compliance.
On your marks for implementation
First, however, came a raft of operational challenges.
FIS head of risk solutions management and strategy, insurance Martin Sarjeant said, “With no benchmark data for insurers to work with and a lack of skilled resources to support their implementation, IFRS17 proved from the start to be a complex, time-consuming endeavor for most Korean firms.”
Having accepted the IFRS17 standard, the Financial Supervisory Service (FSS), Korea’s regulator, had not only created its own interpretation of the rules but also set very high standards for implementation projects.
Luckily, the FSS soon also recognised the amount of work involved in meeting those standards – and, in line with IASB’s extension of the IFRS17 deadline, ultimately deferred the local effective date of IFRS17 from 2021 to 2023.
Partners in compliance
To support the timely implementation of the standard, many insurers in South Korea engaged FIS as a technology partner, and one of the big four audit and accounting firms to advise on calculation methodologies.
Mr Sarjeant said, “With FIS Insurance Risk Suite (formerly Prophet) providing a complete end-to-end solution for IFRS17 modeling, reporting and compliance, we worked closely with the accounting and audit firms to help insurers make sense of the standard and automate its calculations.”
“IFRS17’s methodology wasn’t easy to interpret,” said a spokesperson from MetLife Korea. “Individual insurance companies and accounting firms all have their own interpretations – and the process of retroactively calculating liabilities as corrections was also very difficult.
“We learned just how much time and effort it takes to apply a completely new paradigm to our actuarial operations.”
Get set with a leading role
For actuarial teams across South Korea, IFRS17 was an opportunity to redefine not only their systems and processes but also how they worked with other parts of their insurance company.
“As well as partnering with FIS and accounting firms, actuaries were required to collaborate closely with its accountants on the financial reporting side of the project,” said Mr Sarjeant.
“In most cases, it was determined that the actuarial team would play something of a leading role in the implementation. As our clients were using FIS’ IFRS17 actuarial calculation library to drive their projects, it made sense for the actuaries to take the lead.”
On the world stage, all this work by Korean actuaries and their partners has helped position South Korea as a trailblazer of IFRS17 implementation.
He said, “When you look at some parts of Latin America at the start of 2024, insurers there are just starting their IFRS17 journey and in the same position as Korean firms were in 2017.
“Firms in Columbia, Chile and so on can learn valuable lessons from their counterparts in South Korea, not least that it pays to start their projects as soon as possible and well in advance of the compliance date.”
Go for growth
By their own local January 2023 deadline, most insurers in South Korea were more than ready to comply with IFRS17, after completing a number of practice runs of the end-to-end calculation and reporting process – and addressing several tweaks by the FSS to its regulatory guidelines.
Mr Sarjeant said, “By using a flexible system like Insurance Risk Suite, Korean insurers could more easily respond to any changes in methodology or to the standard itself in the months before going live with IFRS17.
“And with so much overlap between IFRS17 and K-ICS calculations, our system has helped firms meet the new capital standards, too.”
Now, after their first full year of quarterly reporting on an IFRS17 basis, firms are planning to build on their implementation – by using the results to improve long-term profitability.
As MetLife Korea said, “We are currently in the process of developing performance indicators based on the IFRS17 contractual service margin, which represents the unearned profit we expect to earn through our services.
“And over the next two years, we will be looking increasingly to optimise our business strategies for growth under IFRS17 metrics,” he said.
There is also time and opportunity for Korean insurers to optimise IFRS17 processes.
“Having achieved compliance and lived with the standard for a year, firms want to go further,” he said. “They’re thinking about how to manage their business under IFRS17, refine actuarial operations with workflow and data management tools and work faster by moving to the cloud.
“With the need to process large amounts of highly granular data for IFRS17, speed, as well as governance, has always been one of the top concerns of Korean actuaries. Now they are looking to the cloud to help them accelerate model runtimes and drive cost efficiencies and savings.”
Expansion and inspiration
By kickstarting their IFRS17 implementation before firms in many other regions, South Korea’s insurers have not only advanced their actuarial capabilities but are also in a stronger position than most to thrive and grow in fast-changing times for the insurance industry.
“With FIS Insurance Risk Suite underpinning our actuarial and accounting processes, we’ve seen improvements in all areas that use data, from product development, contract management and commission management to operational data management,” said MetLife Korea’s spokesperson.
“Now, we have more time to focus on the future strategic direction of the company, whether we’re helping to develop advanced products for an aging society or to expand from life, health and annuity insurance into new lines of business.”
For FIS, South Korea’s head start on IFRS17 compliance has served as inspiration not just for other insurers globally but also for its own technology.
“Insurers in Korea were among the first in the world to use our IFRS17 solution,” said Mr Sarjeant, “and we’re very thankful to them.”
“If it wasn’t for their forward planning and early adoption, we wouldn’t have the advanced out-of-the-box system we have now – or the success we’ve had implementing it around the world. We owe Korean insurers a lot.” A