South Korea's Financial Supervisory Service (FSS) has announced that under the national roadmap for the IFRS adoption, domestic insurers will transition to the IFRSs beginning April next year when the fiscal year 2011 begins.
According to the temporary plan by the FSS, insurers will be required to put aside loan loss reserve based on losses suffered in accordance with the international accounting standards. The existing standards require insurers to accumulate loan loss reserve based on expected losses to the minimum level provided for by the financial watchdog.
Under the current accounting standards, property insurers should set aside catastrophe provisions (recorded in liabilities) against possible disasters or large scale accidents in the future. But the international accounting standards will ban the accumulation of provisions against expected loss that doesn’t exist now.
The FSS plans to prevent the financial health of insurers from deteriorating with the adoption of the new standards.
The FSS also plans to improve the system to evaluate the appropriateness of legal reserve that an insurer should set aside to pay claims to policyholders.
"Recording catastrophe provisions in capital can create tax problems for property insurers. So we are consulting with tax authorities to address property insurers’ concerns,” says a source from the FSS.