The financial authorities are strengthening the management of actuarial assumptions used in the evaluation of insurance liabilities. From now on, insurance companies will be required to submit annual reports to the financial authorities detailing the basis and changes of the actuarial assumptions applied in calculating insurance liabilities. The management responsibilities of insurance companies regarding the delegation of sales to general insurance agencies (GAs) will also be reflected in management assessments.
On November 4, the Financial Services Commission announced that it had approved amendments to the 'Insurance Supervision Regulations' during its regular meeting.
Insurance companies must prepare reports on the actuarial assumptions applied in calculating reserves and solvency margin requirements and submit them to the Financial Supervisory Service by the deadline for annual business reports. These reports will include the basis and methods for each assumption, major changes, verification results, cash flow modeling, and internal controls related to the evaluation of insurance liabilities.
Actuarial assumptions are estimates used by insurance companies to project future insurance payouts and cash flows, impacting the evaluation of insurance liabilities and solvency.
The internal control standards regarding the calculation and changes of actuarial assumptions will also be strengthened. If an insurance company changes its actuarial assumptions during the year, it must report the reasons, details, and financial impacts to its risk management committee. Changes due to legal amendments or those with minimal financial impact will be exempt from this reporting requirement.
A new non-quantitative evaluation criterion for 'GA Operational Risk Management Adequacy' will be introduced in management assessments (RAAS). This aims to strengthen the management responsibilities of insurance companies regarding sales delegation in response to concerns about consumer harm due to expanded GA channel operations and excessive competition.
New standards for assessing the risks faced by insurance companies due to interest rate fluctuations will also be established. The authorities plan to incorporate the 'duration gap' into the management assessments of insurance companies starting in 2028. The duration gap indicates how the value of assets held by an insurance company and its liabilities, such as future insurance payouts, change when interest rates fluctuate.
Regulations governing product design to support the transition of existing health insurance to the 5th generation will also be revised. Health insurance related to the contract conversion discount system will be exempt from the requirement for standalone design, allowing it to be added as a rider to existing main contracts.
The contract conversion discount system provides a 50% premium discount for three years for 1st and 2nd generation policyholders who switch to the 5th generation health insurance without any re-enrollment conditions if they joined before March 2013. This system, along with a choice-based rider discount system that allows existing policyholders to maintain their coverage while excluding unnecessary benefits to lower premiums, is set to be implemented later this month.
Additionally, the method for calculating the reserve for emergency risk for insurance companies will be revised, and the standards for financial statement presentation will be changed to comply with the International Financial Reporting Standards (IFRS 18) effective from 2027.
The amended supervision regulations will take effect from the date of announcement. The internal controls related to the calculation and changes of actuarial assumptions, the introduction of the GA operational risk evaluation criterion, and the revision of financial statement preparation standards will be applied starting January 1 of next year. The duration gap indicator will be implemented on January 1, 2028.
* This article has been translated by AI.
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