President Kim Jae-shik of Mirae Asset Life Insurance Co.

A scene from the temporary shareholders’ meeting of Mirae Asset Life Insurance Co. held on Aug. 4.(Photos: Mirae Asset)

The insurance industry has been edgy over the changes that the IFRS17 (the International Financial Reporting Standard 17) might bring when it is implemented in Korea in 2021. They are especially anxious over the expected expansion of the coverage areas. When the international accounting standard is introduced for life insurance firms in Korea, their capital will decreased while debts rise, requiring the insurance firms to build up insurance money provisions to prevent a fall in RBC brought on by increased debts.

In order to prepare, insurance firms have been toying with the portfolios of insurance products because the changes they make would impact the map of the industry.

Mirae Asset Life has been getting the industry’s attention, as it has high variable life insurance products while getting good returns from investments. Variable life insurance firms don’t expect significant changes in their debts when the IFRS 17 is introduced because the holders of those variable insurance policies can invest their premiums in bonds and stocks, and insurance firms pay them the returns from their investments, as there are no agreed upon interest rates to be paid.

The net assets of Mirae Asset Life rose to 10.2 trillion won as of June 30 this year, with the number of subscribers of MVP Fund of variable life insurance policies rising rapidly. 

Only five companies out of 23 variable life insurance firms operate MVP Fund variable life insurance. Moody's Investors Service says that International Financial Reporting Standard (IFRS) 17 ― when implemented in Korea ― will challenge the reported capitalization of life insurers, by requiring them to measure their policy liabilities at current interest rate values and therefore provide higher levels of reserves.

"Nevertheless, beyond the pressure on insurers' capitalization profiles, the new standard will, over time, promote structural improvements and value creation in the industry," said a Moody's assistant vice president and Analyst. Specifically, IFRS 17 will improve insurers' pricing discipline and product mix by better reflecting the true economic cost of embedded options and guarantees in their products.

The financial and operational implications of IFRS 17 adoption will vary by entity. 

However, it will represent a fundamental change in most insurers’ accounting practices and provide a major challenge for large parts of the industry. There are opportunities to optimize adoption, though, both operationally and in terms of financial performance. Mirae Asset Life Insurance Co. said recently it will complete its integration with PCA Life Insurance Co., the local unit of Britain's largest insurer Prudential Plc., by the first quarter of next year.

The move came after Mirae Asset Life Insurance acquired PCA Life Insurance in an arrangement worth 170 billion won ($150 million). Mirae Asset Life Insurance ruled out restructuring as it vowed to guarantee employment of all employees of PCA Life Insurance. The takeover will make Mirae Asset Life Insurance the fifth-largest life insurer with assets of 33.41 trillion won in the domestic insurance market. 

 Mirae Asset Life Insurance’s decision to purchase PCA Life Insurance comes after recognizing PCA’s strength in the variable life insurance sector. 

A Mirae Asset Life Insurance official said, “The company aims to become the best retirement planner in the domestic insurance industry by maximizing a synergy effect of the merger in the variable life insurance sector.” As of the end of August, total asset value of PCA Life stood at 5.3 trillion won ($4.54 billion) and its assets related to variable life insurance products amounted to 3.8 trillion won.