Life insurers: Predictions for Year of the Rabbit
Life insurance companies across Asia Pacific have, over the past few years, had to contend with the adoption of new national regulatory regimes and the Year of the Rabbit that begins January 22 comes amid major shifts in several markets.
These new frameworks will, among other things, influence capital requirements related to investments (specifically related to risk-based capital) and require the application of International Financial Reporting Standards 17 (IFRS 17).
These frameworks are set to influence insurer preferences in each asset class and will likely shape their asset allocation strategies.
At the same time, life insurers will also consider their balance sheets and seek to find assets that best match their liability span. All of this comes in the wake of the turbulent Year of the Tiger which rocked financial markets.
China implemented a new solvency regime, C-ROSS, in 2016. An amended regime, C-ROSS II, has been effective since January 1 2022 with a first reporting date of March 2022.
From January 1, 2023, Chinese Accounting Standards for Business Enterprises 25 (CAS 25) have been effective for listed companies only.
In 2010, the Financial Services Agency, Japan (JFSA) conducted the first field test for all insurers to calculate economic value-based insurance liabilities. In June 2020, a JFSA study group released a report recommending the new regime be implemented in April 2025.
On January 1, 2013, IFRS 17 became effective for volunteering entities. While the finalisation of the economic value-based solvency ratio (ESR) standards are in process, they are projected to become effective by April 1, 2025, with the first ESR calculations by March 1, 2026.
The current South Korean RBC has been in effect since 1999 and was mainly based on EU Solvency I. Since then, Korean regulators have developed K-ICS, a completely new risk capital regulation aligning to some degree with IFRS 17 by referencing both EU Solvency II and the Insurance Capital Standard (ICS). Both K-ICS and IFRS 17 came into effect by January 1, 2023.
The solvency regime is governed by the Hong Kong Insurance Ordinance (HKIO) issued in 1999, but revised in 2004. Hong Kong is now implementing a new RBC regime to align with international regulatory requirements.
On January 1, 2023, the Hong Kong Financial Reporting Standards 17 (HKFRS 17) became effective. The Hong Kong risk-based capital (RBC) is scheduled to become effective January 1 2024.
In Singapore, the Monetary Authority of Singapore (MAS) is aiming to implement a new risk-based capital (RBC) framework, RBC 2, for insurers by the end of Q2 2023 such that the first set of quarterly returns submitted for a licensed insurer in the city state on the RBC 2 consolidation basis will be for Q2 2023.
The Australian Prudential Regulation Authority (APRA) - which initiated the Life and General Insurance Capital Standards (LAGIC) framework in 2009 with strong parallels to Solvency II - released its final Reporting and Prudential Standards at the end of 2022.
The APRA Prudential Standard will become effective on July 1, 2023. The Australian Accounting Standards Board 17 (AASB 17) include Australian equivalents to IFRS 17 and became effective on January 1, 2023.
On January 1, 2023, the New Zealand IFRS 17 and solvency standards became effective. In 2025, the Final Solvency Standard is intended to replace the Interim Solvency Standard once a concurrent review of NZ’s Insurance Prudential Supervision Act 2010 (IPSA) is complete.