South Korea's financial regulator said Tuesday it will relax some capital rules and other technical standards for insurance firms to help them better cope with changes in global accounting rules.
South Korea is one of more than 100 nations that will adopt the new global bookkeeping standard or the International Financial Reporting Standards 17, starting in January 2021.
When adopted, some insurers in South Korea will face capitalization pressure, analysts said.
To help insurers alleviate potential fallouts from the change, the Financial Supervisory Service said it will lengthen the duration of the risk-based capital ratio of an insurer to 25 years from the current 20 years.
The revised rule will be applied to insurers starting next month if they want to adopt it, the regulator said in a statement.
Then in 2018, the duration will be further lengthened to 30 years, it said.
With insurers expected to be exposed to a larger duration mismatch between assets and liabilities, the FSS said it will grant a duration for an insurer's foreign currency-denominated assets.
Under the global accounting change, insurance contract liabilities must be calculated based on current interest rates and provisions. The current rule requires insurers to calculate policy liabilities on the basis of their value and risks at the time of a contract.
Last month, credit appraiser Moody's Investors Services said the reported capitalization of South Korean life insurers is expected to face pressure if they adopt the new international accounting standard.
However, the new accounting standard is likely to have a positive impact on South Korean firms going forward.
"Beyond the pressure on insurers' capitalization profiles, the new standard will, over time, promote structural improvements and value creation in the industry," Moody's said in a statement. (Yonhap)