Accounting and Finance
Scope
This domain tests financial reporting for insurers and solvency finance. In Korea the key frameworks are IFRS 17 for insurance contracts and K-ICS for capital adequacy, alongside traditional accounting for investments and expenses.
Core rules
- IFRS 17 measurement: fulfilment cash flows (best-estimate liabilities plus risk adjustment) plus contractual service margin (CSM).
- CSM is unearned profit and is released to profit over coverage; it is not premium revenue.
- K-ICS compares available capital with required capital; the ratio is available/required, with 100% as the regulatory minimum.
- Required capital covers insurance, market, credit, and operational risks, with diversification and supervisory adjustments.
- Assets and liabilities should be duration-matched; interest-rate movements affect both but not equally.
- Book equity, regulatory capital, and embedded value are different measures and must not be mixed.
Worked example
An insurer reports available capital of KRW 1.2 trillion and required capital of KRW 0.8 trillion. Find the K-ICS ratio and the surplus.
Ratio = 1.2/0.8 = 1.50, or 150%. Surplus = 1.2 - 0.8 = KRW 0.4 trillion. If required capital rises to KRW 1.0 trillion with unchanged available capital, the ratio falls to 120%. Reasoning: the ratio is a coverage measure, not a profit measure; a 150% ratio means assets exceed the regulatory capital requirement by 50% of that requirement. Regulators may require remediation as the ratio approaches the minimum.
Traps
Do not add CSM to available capital without checking the K-ICS classification. IFRS 17 profit emergence is not the same as cash flow. A high accounting equity figure does not guarantee a high solvency ratio if asset-liability mismatches create market-risk charges. Watch units: 조, 억, and trillion must be converted consistently.