Some South Korean insurers may have exaggerated their recent financial reports through the exploitation of a legal blind spot in IFRS 17, the new standard adopted this year.
Insiders in the sector said that there are concerns that instead of focusing on growth driven by the business fundamentals, some insurers may have been interpreting their earnings based on a loophole in the young regime.
A report from The Korea Times indicated that the Financial Supervisory Service (FSS) of Korea is still in the process of tightening its IFRS 17 guidelines through talks with domestic firms. Industry officials said that it would take a few more years before accurate earnings results are reported under the correct and consolidated criteria.
“Even if the IFRS 17 was adopted at the end [of] this year after a decade of preparation, it appears to take more time for the soft landing of the standards here, as watchdogs need to listen to the voices and complaints from each insurer and minimize market confusion,” an insider said.
Under IFRS 17, the sector’s major life and nonlife insurers reported a combined profit of KRW8 trillion (US$5.97 billion) in the first six months of the year, a figure that is on par with the combined total for commercial banks during the same period. The gap should be wider, the report mentioned, as banks are generally the more profitable financial firm between the two industries.
Meritz Fire & Marine Insurance vice chairman Kim Yong-beom said that confusion around the consolidated criteria for IFRS 17 will take a couple of years before it settles into a more concrete standard.
“[Some insurers] appear to try a shoddy set of profit exaggeration following the adoption of IFRS 17,” he said during a conference call. “But such attempts are easy to detect. The market will be on track for normalization in two to three years after IFRS 17 is settled here.”
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