FSC held the third meeting of “Advancement Group for Insurance Capital Soundness.” At the meeting, the participants discussed system improvements in preparation for the implementation of IFRS 17 on insurance contracts; the discussions covered the improvement of the liability adequacy test, or LAT, and the establishment of the Financial Soundness Reserve. The changes to the liability adequacy test are intended to actively induce insurers to raise capital in preparation for the implementation of IFRS 17.
According to the notification, "the liability adequacy test is being operated to induce debts to be prepared in advance" for the market price evaluation of insurance liabilities due to IFRS 17. The IFRS 17 implementation has changed the cost method, which used to discount insurance liabilities at historical interest rates, to the current price method, which is discounted at interest rates. It is necessary to examine how to raise capital in preparation for the implementation of IFRS 17 if the profit or loss of insurers is sensitive to interest rate fluctuations.
Related Link (in Korean): Press Release
Keywords: Asia Pacific, Korea, Insurance, IFRS 17, LAT, Current Price Method, Insurance Contracts, Liability Adequacy Test, FSC
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