Korean Re’s 1H23 earnings surge to KRW269b

Korean Re started reporting quarterly results based on IFRS 17 and IFRS 9. 

In the first half of 2023, Korean Re reported KRW268.9b in net income, supported by an underwriting income of KRW215.3b. 

Despite challenges such as fire losses at Hankook Tire and losses from the Turkey earthquake, there was a notable improvement in the performance of life and long-term insurance, along with certain commercial lines of business.

Its investment income reached KRW127.5b, driven partly by gains resulting from a new approach to the classification of financial assets under IFRS 9. 

Importantly, under IFRS 17, foreign currency exchange gains and losses related to insurance contract liabilities are now categorised under insurance finance income & expenses within the investment profit and loss (P&L). 

Insurance revenue for the first half of 2023 amounted to KRW3.0t, down from KRW3.2t in the previous year. 

IFRS 17 introduces accrual-based revenue recognition, aligning it with services provided and excluding deposits. Non-distinct investment components are excluded from the insurance P&L.

Changes also extend to accounting for reinsurance commissions. Fixed reinsurance commissions, regardless of insured event occurrence, are now deducted from insurance revenue, reducing the apparent revenue volume. 

ALSO READ: Insurers need to reevaluate policies for EVs: Korean Re

Previously, they were treated as a business expense under IFRS 4. Variable reinsurance commissions, also under IFRS 4, are now recognised as part of claims under IFRS 17.

Both business expenses and claims are now recognised in profit or loss, resulting in a classification impact without affecting net income. Its contractual service margin (CSM) reached KRW1.02t as of June 2023 and is expected to remain around KRW1t. 

CSM represents future profits and is released into earnings as insurance contracts are fulfilled as expected, making it a critical indicator of insurance business performance. Positive by nature, the CSM is expected to amortise into profit over time.

In 2023, Korean Re started reporting quarterly results based on IFRS 17 and IFRS 9. 

Comparative figures from the previous year may not be fully comparable since 2022 figures for the insurance business were presented under IFRS 17, while corresponding figures for the investment business were based on IAS 39.

Regarding the transition to IFRS 17, companies have three options: full retrospective, modified retrospective, and fair value approaches. 

Korean Re adopted the modified retrospective approach for general insurance and the fair value approach for life and long-term insurance. Additionally, the Premium Allocation Approach (PAA) was used for general insurance, and the Building Block Approach (BBA) for life and long-term insurance.