Abstract

The insurance industry in Taiwan has adopted IFRS (International Financial Reporting Standards) 9 in 2018, and IFRS 17 is expected to be implemented in 2026. In this study, we investigate the impact of these two standards on the life insurance industry in Taiwan. We review the supervision regulations, conduct qualitative interviews, and perform quantitative simulation analysis. Our results show that regulators are strategically moving in a phased manner in the context of industrial self-discipline, external accountants’ cooperation and corporate governance to reduce the transitional impacts. Since implementation of IFRS 9, volatility of life insurance companies’ profit and loss and owners’ equity has increased; companies’ willingness to hold high dividend stocks has risen; and recognition of bond investment benefits has become more flexible. Although IFRS 17 has not yet been implemented, simultaneous quantitative simulation of impact of IFRS 9 and IFRS 17 shows that both the fluctuation of income of life insurance companies and fluctuation of owners’ equity will increase significantly. We speculate that life insurance companies may face a sharp increase in liabilities and a sharp decline in owners’ equity, which will make their liabilities become extremely unstable and increase the probability of going into insolvency. The supervisory authority should consider the characteristics of the Taiwan life insurance market when formulating the future long-term interest rate curve, and adopt a more localized supervisory strategy to reduce the impact of interest rate fluctuations.  

Keywords

life insuranceIFRS 9IFRS 17insurance regulation