Co-reinsurance in the insurance sector is expected to be introduced in April this year, following a meeting on 30 January called by the Financial Services Commission during which the issue was discussed.
Risks related to interest rate fluctuations are expected to be shared with reinsurance companies, and insurance companies’ reverse margin and recapitalisation burdens are expected to be eased, reported Business Korea.
According to the plan, insurance companies will pay savings insurance premiums and additional insurance premiums to reinsurers such as Korean Reinsurance and transfer interest rate risks as well as insurance risks to them at the same time.
Accounting procedures will be further clarified, too. Specifically, an insurance company will regard the difference as prepaid expenses or assets and write it off during a contract period and a reinsurance company will regard the difference as an unearned income or liabilities and write it off during the contract period.
South Korean insurers have sought to recapitalise through methods such as subordinated debt issuance and investment in long-term treasury bonds, with IFRS 17 and the Korean Insurance Capital Standard (K-ICS) scheduled to be implemented in 2022. They say that these methods have their own limitations and demand a measure to reduce an increase in liabilities with regard to high-interest insurance contracts.
According to the FSC, co-reinsurance is expected to contribute to the financial soundness of insurers. Foreign reinsurance companies’ know-how is expected to be shared.