(LEAD) Insurers must calculate contract liabilities with present value from 2021
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SEOUL, May 18 (Yonhap) -- Insurance contract liabilities must be calculated based on current interest rates and provisions from 2021, when a new global accounting rule is introduced in South Korea, financial regulators said Thursday.
South Korea is one of more than 100 nations that will adopt the new global bookkeeping standard, or International Financial Reporting Standards 17, from January 2021.
Under the current rule, insurers' contract liabilities are calculated on the basis of their value and risks at the time of a contract.
The new rule is expected to enable a "fairer" assessment of insurers' ability to withstand stress, but also force them to have more capital bases and reserves to cover potential losses.
In a statement, the Financial Services Commission said it will encourage insurers to better cope with the new accounting rule.
Amid concerns that the new accounting rule may prompt some insurers to report significantly higher liabilities, the financial regulator said it will gradually strengthen its monitoring of the financial health of insurers.
Also, the regulator said it would lengthen the duration of risk-based capital ratio of an insurer to 30 years from the current 20 years.
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 life insurers.
"Nevertheless, 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.
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