SEOUL, Aug. 23 (Korea Bizwire) — A report released on August 22 ranking the fourteen major life insurance companies by risk-based capital ratios showed four of the top five places occupied by foreign companies.
Samsung Life Insurance held down second place with a 331.8 risk-based capital ratio (RBC), followed closely by Lina Life Insurance with a 319.5 RBC, while the top spot was taken by ING Life Insurance with a commanding 522.6 RBC.
A company’s risk-based capital ratio is a measure of its necessary holdings of capital to support its overall business operations. The more operations the company manages, the more capital it should hold in relation to higher risk.
Some point to the financial services regulators’ intention of implementing new accounting standards referred to as “IFRS17” by 2021 as the major cause for the change in the RBC rankings (three of the top five spots were held by domestic companies last year).
Announced in May, a core part of the new regulations allows for the extension of insurance contract durations. Current regulations limit insurance liabilities to a lifespan of 20 years, but the duration will be extended by five years as of the end of this year and by another five next year to push the lifespan to 30 years.
The 20-year limit on liabilities was set in 2009 when the RBC formula was first used domestically. It was decided upon by the limitations of accounting systems of the time when measuring for risk beyond 20 years.
Foreign companies like ING Life Insurance and ABL Life Insurance have taken the initiative in extending their liability durations.
The reason why these companies could transition so quickly is because they managed their capital holdings and liabilities in accordance with global standards.
Under the pre-existing regulations, foreign companies were often at a disadvantage as their liabilities were set to 20-year durations but their capital holdings were aligned with global standards. RBC decreases when the gap between these two qualities grows.
This explains the palpable effect the financial authorities’ decision has had on the rise in foreign companies’ RBC.
Compared to the recorded ratios at the end of last year, AIA Life Insurance’s RBC climbed 43.1 percentage points, while ABL Life Insurance saw a near equivalent 40 percentage point increase.
Kevin Lee (firstname.lastname@example.org)