South Korean financial authorities are preparing to decide whether Samsung Life Insurance can continue using an exceptional accounting approach for participating policyholders’ interests, a move that could affect the way liabilities are presented under IFRS 17 and influence how insurer balance sheets are reported.
According to The Chosun Daily’s report, the issue stems from how Samsung Life has treated the rights of policyholders in legacy participating policies that were used, in part, to fund purchases of Samsung Electronics shares. These holdings form part of the Samsung Group’s ownership structure, and if realised gains are generated from selling the shares, a portion is due to participating policyholders.
Under the international insurance accounting standard IFRS 17, introduced in South Korea in 2023, expected distributions to policyholders are generally recognised as liabilities only if they are expected to be paid out as dividends. Where those amounts are not expected to be distributed, they would not usually remain on the books as insurance liabilities.
In Samsung Life’s case, fully applying the rule would reduce reported insurance liabilities and remove participating policyholders’ dividend-related interests from the liability side of the balance sheet. Market participants have raised concerns that this could prompt a negative response from policyholders if their economic claims appear to be reclassified or reduced in financial disclosures.
To address those concerns, the Financial Supervisory Service (FSS) under former governor Lee Bok-hyun previously relied on an exception in international standards. The interests of participating policyholders were booked as a “policyholder’s equity adjustment” and kept within liabilities, a domestic treatment that has been labelled “deviant accounting” in the Korean policy debate.
Civic groups and some market participants have argued that such exceptions are inconsistent with the intent of IFRS 17 and could create divergence from global practice. The debate has intensified since August, when Lee Chan-jin became governor of the FSS and initiated a review of the earlier stance.
During a parliamentary audit last month, Lee signalled a shift. “Internal coordination has been completed regarding the deviant accounting issue, and we are aligned with the position that it should adhere to international accounting standards,” he said, as reported by The Chosun Daily. His comments have been interpreted by industry observers as indicating that the exception may be removed.
The Financial Services Commission (FSC) and the Korean Accounting Standards Board plan a joint meeting on the first of next month to determine whether life insurers, including Samsung Life, may continue to apply the special treatment. If the exception is withdrawn, participating policyholders’ shares would be classified as capital based on company judgment rather than as a “policyholder’s equity adjustment,” and the associated dividend interests would no longer appear as insurance liabilities.
The accounting review comes in parallel with a structural adjustment in the Samsung Group’s insurance operations. Earlier this year, the FSC approved Samsung Life’s application to treat Samsung Fire & Marine Insurance Co. as its subsidiary, formally allowing Samsung Life to hold more than 15% of the non-life insurer’s shares, according to Pulse’s report.
Samsung Life sought regulatory approval on Feb. 13, ahead of Samsung Fire & Marine’s plan to retire treasury shares as part of the government’s Value-Up initiative, which the government has said is intended to support shareholder returns. Without subsidiary status, the retirement would have pushed Samsung Life’s stake above the 15% limit on cross-shareholdings set out in the Insurance Business Act.
The law caps an insurer’s shareholding in another insurer at 15%, unless the investee is recognised as a subsidiary. Projections indicated that Samsung Life’s interest in Samsung Fire & Marine would rise to about 15.9% this year and to around 17% by 2028 as treasury shares are cancelled. Regulatory sources have indicated that the approval was based in part on the view that the change does not materially alter the existing governance arrangements within the Samsung Group.
